Executive summary

Introduction

This study focuses on organic agriculture as a possible alternative for the diversification of production among small farmers. Organic production mainly involves the application of agronomic, biological and mechanical methods instead of chemical synthetic inputs. Most definitions also incorporate reference to the use of several techniques that are not exclusive to organic agriculture, since they may be applied in conventional and low-input production systems as well, in particular ‘better land husbandry’ techniques such as soil-conservation measures, crop rotation and the use of green manure and of mechanical methods instead of the slash-and-burn technique. An important differentiation involves ‘certified’ vis-à-vis ‘non-certified’ organic agriculture. Although a high proportion of small farmers in the countries of Latin America do not use chemical inputs (and in that sense they are already producing organically), there has been an increasing trend in both the industrialized world and developing nations to pass laws and regulations that require products to be certified by specialized agencies before they can be sold as ‘organic’, ‘biological’, or ‘natural’.

The main issues analysed are the following: (a) the impacts of a shift to organic production on the different types of production, on incomes and on the quality of the lives of small farmers; (b) the main technology problems faced by small farmers and the costs involved in the transition to organic production; (c) the main problems related to the certification of organic products and the ways small farmers are able to deal with these problems; (d) the role of exports and domestic markets and the relevance of contract arrangements between farmers and buyers and (e) the role of government policies and agencies and of non-governmental organizations (NGOs) and donors in helping small farmers to produce organically.

These issues have been analysed through a set of case studies of small-farmer groups that have been successful in adopting organic technologies and in marketing their organic products. The cases are located in countries of the Latin America and the Caribbean (LAC) region with different policies towards organic agriculture and various degrees of development in the institutions dealing with organic agriculture. In addition, they involve different agricultural products that have specific characteristics and pose different challenges and problems for organic producers. The cases include the following: (a) coffee production in the state of Chiapas in Mexico and honey production in the Yucatan Peninsula in Mexico; (b) cacao and banana production in Talamanca county, province of Limón, Costa Rica; (c) coffee production in the department of Huehuetenango, Guatemala; (d) sugar production in the San Javier region, province of Misiones, Argentina; (e) the production of fresh vegetables in the Las Pilas region, department of Chalatenango, El Salvador, and (f) banana production in the province of Azua, the Dominican Republic. The study has covered a total of 12 farmer organizations that comprise about 5 150 farmers and close to 9 800 ha of organic crops. All the cases, except for that in El Salvador, involve organic products for export, while the organic vegetables produced in El Salvador are sold in the domestic market (supermarket chains in the capital, San Salvador). Three of the cases (in El Salvador, Guatemala and Mexico) involve farmer organizations that have been supported through IFAD projects. Eight of the twelve organizations represent indigenous communities.

The findings of the study provide interesting and useful lessons for projects. The main conclusions and lessons for projects and policies aiming to promote changes in the agricultural production of small farmers are outlined below.

On the impacts of organic production on small farmers

The shift to organic production had positive impacts on the incomes of small farmers in all the case studies. While the case studies show different situations in terms of how production costs, yields and product prices evolved among small farmers who shifted to organic agriculture, in all cases organic producers obtained higher net revenues relative to their previous situation. The sustainability of these effects depends on many factors, including the capacity to maintain similar or higher yields (which depend partly on using organic fertilizers to compensate for the nutrients extracted by the crops) and the future evolution of the prices of organic products.

The evolution of production costs is related to the characteristics of the previous production system. Farmers who used to apply conventional production systems and technologies closer to those employed in organic production (coffee in Guatemala and Mexico, cacao and bananas in Costa Rica, bananas in the Dominican Republic, honey in Mexico) experienced an increase in production costs because they had to introduce improvements in the technologies of production. Most of these technologies were labour intensive, and small farmers used mainly family labour to deal with the higher demand for labour. In addition, farmers also faced new costs related to the certification of production as organic. In contrast, those farmers who used to apply chemical inputs before shifting to organic methods of production (sugar cane in Argentina, vegetables in El Salvador) experienced a decrease in the total production costs, even though they experienced higher labour costs.

Those farmers who used to produce under systems of production closer to the organic system experienced a rapid increase in yields after shifting to organic methods of production. In contrast, those who used to apply chemical inputs obtained lower yields during the first years after the shift. Farmers in some cases (bananas in the Dominican Republic, honey in Mexico) experienced no significant changes in yields. Meanwhile, all the farmers who shifted to organic obtained prices for their products that were higher than those obtained by similar conventional producers located close by. While the higher prices can be explained by the organic nature of the products, the type of relationship that farmers established with buyers also played a key role in the price margins. Thus, higher prices were gained when farmer organizations succeeded in developing long-term relationships with buyers.

Interestingly, small farmers dominated organic production in all the countries in which the case studies were located. In fact, most organic producers in these countries – and in most of the other countries in Latin American – were small farmers, and small farmers accounted for most of the areas under organic farming everywhere except in Argentina. Such a dominant share in organic farming suggests that small farmers may have some comparative advantage in organic production. First, most small farmers in LAC already produce more or less ‘organically’, using few or no chemical inputs and frequently grow crops under the forest and mixed with other species. Thus, they find the shift to organic production relatively easy, because they have to introduce only marginal improvements to the technologies they already apply. In addition, they are not likely to experience a higher incidence of pests and disease when they produce organically. In contrast, larger and more well capitalized farmers who produce with technologies based on chemical inputs often face more difficulties when they shift to organic production because they need to learn technologies that are quite different, and their crops are initially more affected by pests and disease. Finally, the technologies of organic production require little investment and are labour intensive. They thus rely on factors of production that are most available to small farmers.

The organic models of production have also been associated with positive effects on the health of producers and workers and on the environment. This statement, however, is based on qualitative evidence, as no measurements have been obtained to support it precisely, and only limited research has been carried out in all the countries included in the study. Most organic producers have argued that their concerns about the potential effects of chemical inputs on health have been an important factor in their shift to organic methods of production. In addition, organic producers have usually used environmentally friendly technologies – sometimes even before certifying their plantations as organic – by cultivating their crops under the shade of native trees and using few or no chemical inputs. The few studies identified have found that these systems have helped preserve natural forests and biodiversity, being characterized by a high number of species of trees and birds. Organic production has led to the introduction of additional improvements, such as soil-conservation measures that are absent among conventional producers, thus improving the conservation of soils. These findings suggest that efforts should be carried out to obtain deserved payments for the relevant small farmers for the environmental services that are involved in these production systems.

Not all small farmers faced the same conditions in successfully making the shift to organic production. Their possibilities to succeed in organic production were strongly influenced by some characteristics of small farmers, including, mainly, the technologies and production systems previously applied, land tenure and household features. Those who already produced more or less organically found it easier and less costly to meet the certification requirements, having to make only marginal changes in their technologies of production. In addition, their yields did not fall, as did those of farmers who had been using chemical inputs intensively. Those who had more family labour available faced lower costs as regards labour-intensive organic methods of production. Those who had stable land tenure were able to carry out investments in land-conservation measures. In contrast, farmers who were already using chemical inputs more or less intensively, who had little family labour available – a frequent situation among women farmers – and who were experiencing unstable land tenure found it very difficult to succeed in organic production. The switchover of these poorer farmers to organic production would require specific measures to support more heavily the transition period and to solve problems of land tenure.

Organic production may be an interesting alternative for projects aimed at small farmers. However, it should not be viewed as a unique alternative, but one of several possible ways to improve the production and incomes of small farmers. Also, it should not be viewed as a solution for coffee producers who have been suffering through the coffee crisis of the last few years. Several specialists have stressed that the price margins paid for organic products are likely to decrease in the future, as supply increases and new consumers come in who are less willing to pay higher price margins. If policies and projects cause organic agriculture to expand too quickly, the new organic producers might be hurt by falling prices. Thus, projects should promote organic production as one of the alternatives in a menu of possible options, concentrating on those that offer the most appropriate conditions to succeed, as explained above.

On the constraints faced by small organic producers

i) Land tenure

12. Most successful organic producers own their land, and small farmers with unstable land tenure seem to have been unable to produce organic products. The main reason for the exclusion of these small tenants relates to the need to implement land-conservation measures, the most important investment required when shifting to organic production. First, the returns to land-conservation measures are obtained in the medium and long run, so farmers have not been willing to implement them when they have not known how long they would stay on the land. Second, tenants who are renting the land need the landowners’ permission to carry out the land-conservation measures, a permission that has usually been denied due to the landowners’ fear that they would face more difficulties in evicting tenants in the future if they carried out improvements in the land. Thus, projects that promote organic agriculture among small farmers should initially concentrate on those who have stable forms of land tenure, preferably property. In addition, they should promote long-term rental contracts among small producers renting the land and provisions to compensate them upon the termination of the contract for the residual value of investments made in improving the land. They should also target landowners through promotional activities to convince them of the importance of land-conservation measures and to obtain their support before promoting organic agriculture among small renters.

ii) Technology issues

The most successful organic producers have been those who were already applying a production system characterized by technologies not based on chemical inputs, a frequent situation among small farmers who do not have the resources to pay for expensive inputs. These production systems are frequently seen in a negative way because of the low productivity of the crops compared with the single-crop production system. However, they have some great advantages: (a) they can be certified as organic with little change or no change at all in production practices, turning them into viable economic alternatives; (b) they may have positive effects on the conservation of the environment; (c) the efforts in training and technical assistance are likely to be significantly lower and (d) the transitional period is likely to be shorter and less expensive, as farmers will probably not experience the fall in yields that usually characterizes the suspension in the use of chemical inputs in input-intensive production systems. Thus, projects aiming to promote organic agriculture among small farmers should concentrate on those producers who are already producing more or less organically.

While small farmers have found organic technologies relatively easy, extension services have had an important role in solving specific technical problems. First, exporters and marketing firms recognize that the buyers of organic products in industrialized countries are becoming increasingly more demanding in terms of quality. Small organic producers in some of the cases have experience quality problems that may jeopardize their future access to foreign markets, because some large firms (including transnational corporations) have established their own plantations. Second, groups of small farmers could be hurt significantly if only one group member or a few group members do not comply the organic methods of production, losing money and the trust of buyers. Therefore, extension services for small organic producers should concentrate on improving the quality of production and on controlling compliance with organic methods of production.

While universities and training institutions for agricultural specialists in most LAC countries have been incorporating organic agriculture in their programmes since the mid-nineties, extension services have usually faced problems in finding professionals trained in organic agriculture, with the exception of coffee, in which a substantial number of professionals have obtained on-the-job training. Thus, the incorporation of issues related to organic production by research and education programmes of universities and training institutions is key in generating a supply of professionals with the adequate training. Thus, it is essential to support these programmes if they have not been developed yet and where the insufficient supply of professionals may become a serious constraint on the success of projects involving organic agriculture.

iii) The financing of organic production

Surprisingly, organic production in all the cases studied has developed in spite of the limited availability of formal sources of on-farm credit. This has related not only to the difficulties faced by small farmers in gaining access to formal credit, but also to the fact that the financial institutions in most countries do not recognize the differences between organic and conventional agriculture. Thus, they might provide credit for a crop such as ‘coffee’, but not to ‘organic coffee’, which has exhibits specific characteristics and financial needs.

Shifting to organic production has not required significant on-farm investments, mainly because the previously dominant production has been similar to organic production. However, farmers may still require some financial support. The most important investments that farmers have faced when shifting to organic production have been the introduction of soil-conservation measures. While small farmers use family labour, they have usually needed to hire some wage labour to implement these soil-conservation measures. In addition, organic producers have faced higher production costs – especially labour – and certification costs.

The transitional period – the first two or three years after farmers start to produce organically – has been the most difficult period for organic producers in terms of financial needs. During this period, farmers have had to carry out soil-conservation measures and pay for certification costs without being able to obtain premium prices. Thus, small farmers will benefit greatly from the availability of short-term credit for hiring the necessary wage labour. This type of credit will be especially necessary for women producers, who are frequently alone and have fewer resources of their own to pay for wage labour. In addition, projects could provide temporary and partial subsidies for these investments in soil-conservation measures and for covering certification costs during the transitional period.

The most important off-farm investments required by organic production are similar to the ones required by conventional production, including packing and storage facilities for products such as coffee, cacao, vegetables and bananas. Because these investments are too large for a single small farmer, they have usually been carried out by farmer associations or marketing firms. When farmer associations have worked well, these investments have allowed them to capture a substantially higher portion of the final price of the organic products. Thus, projects should make available financial resources to support investments in packing and storage facilities for farmer associations that are well organized and have prospects of success. In addition, funding should be secured so that the associations can purchase the organic production from their members.

On the strengthening of farmer associations

Producer associations have played a major role in the incorporation of small farmers in organic production for several reasons:

(a) They have made it possible to take advantage of economies of scale in marketing the products of their members collectively and in managing volumes that have lured foreign buyers to negotiate with them. Buyers have been eager to negotiate with the associations because they have found it easier and cheaper to negotiate and implement contracts with one or a few associations rather than with a large number of individual small farmers.

(b) They have been able to train a large number of small farmers in the basics of organic production and in promoting among them the adoption of new technologies of organic production.

(c) They have been able to organize a monitoring system to control their members’ compliance with organic methods of production. When a monitoring system has worked well, it has served to decrease significantly the costs of certification for the individual association members, as the certification agency has not had to carry out inspections among all association members, but only among a sample of them.

(d) They have been able to attract government agencies and NGOs to help them and their members adopt the necessary changes to adopt organic production.

Based on this evidence, programmes and projects that promote the adoption of organic crops among small farmers should strongly support farmer organizations. This is far from an easy job, as organic production will pose great organizational demands on farmer associations: (a) organic agricultural products in developing countries are often sold in foreign markets; so the organization will have to deal with foreign buyers who are demanding in terms of quality and the timing of deliveries; exporting is also much more demanding in terms of logistics and coordination and (b) the certification of production will require expensive inspections, as well as certification costs (specially during the transitional period), the establishment and running of a monitoring system and the promotion of participation at the grass-roots level in order to avoid free riders. Thus, projects working with small farmers that aim to support organic agriculture should target groups of farmers that show good prospects of succeeding in their collective action.

Projects working with small producers should focus on strengthening associations that will play a major role in the marketing of production, the dissemination of organic technologies among their members and the monitoring of their members’ compliance with organic methods of production. Projects should provide solid support during the transition period for the certification of production, including temporary and partial subsidies to cover certification costs, for intensive training among association members in the characteristics of organic production and the markets and problems of non-compliance, and for the organization of a well-functioning and participatory monitoring system.

Organizing an effective monitoring system will require the following: (a) strengthening managerial and organizational skills through training and the provision of technical assistance in these areas; (b) some material resources, mainly a computer and software to organize information and a few vehicles for carrying out inspections and (c) in-depth training for all members during the early stages to help them understand the basics of organic production and the risks for all members of non-compliance even by isolated farmers. The most effective and least costly monitoring systems have not involved a specialized technical department within the farmer association, as has been the case among many farmer associations elsewhere, but the incorporation and active participation of the membership in the system. This participation has given members a strong role at the grass-roots level in controlling any deviation from the organic methods of production and in deciding on penalties.

On the marketing of production

The marketing of organic products through farmer associations that have established direct contacts with buyers has been key in helping small farmers obtain better prices. Long-term contracts have been the better ones because they have provided a safe market and more stable prices. Access to the fair trade market has increased substantially the final price and further reduced price instability.

Contract-farming schemes involving processing and marketing firms have facilitated the marketing of the production of small farmers and given them access to extension services and, occasionally, credit, but they have also had some disadvantages. Small farmers have a relatively weak position in negotiations with firms because they have limited information and are poorly organized, so they have ended up receiving relatively low prices and accepting contract terms that are not convenient for them. In addition, outgrower schemes with small farmers may have severe limitations, including the high costs of monitoring the contracts with small farmers and the difficulties in appropriating the benefits of investment in the schemes due to the diversion of output to other buyers who may be paying prices that are higher than the ones agreed in the contracts. Thus, large buyers may play an important role in promoting organic production more in terms of providing demand stimulus and channeling knowledge to producers and producer associations rather than in the promotion of outgrower schemes.

The domestic markets for organic products in developing countries show good growth prospects and are likely to be an attractive alternative for small farmers because they are easier and usually less demanding in terms of quality. Thus, projects working with new organic producers might target initially the domestic market, especially when there are good possibilities for selling to supermarkets and food chains.

On the role of government policies

Small organic producers and their associations have often taken advantage of government programmes and agencies, receiving public funding and technical assistance in implementing the changes necessary to shift to organic production. However, almost none of these agencies, programmes and projects have specifically targeted organic production. Government policies and institutions dealing specifically with organic agriculture have played a marginal role in the emergence of organic products in general and in the success of small organic producers in the case studies in particular. While this evidence suggests that specific policies and institutions may not be necessary, it is important to support their development, if they are not present, for many reasons:

(a) Some new requirements in importing countries – mainly the European Union (EU) – in terms of developing laws and institutions dealing with organic agriculture have emerged in recent years. These laws and institutions are intended to ensure that organic products going into the importing countries are produced and certified according to EU standards.

(b) Appropriate laws and institutions dealing with organic agriculture provide protection to small producers and exporters of organic products in case they encounter problems in foreign markets. In addition, they are essential in international negotiations with governments to open up access to foreign markets.

(c) National laws and regulations may make it possible to decrease the certification costs faced by farmers by leading to the establishment of nationally based certification firms.

(d) The experience of the countries that have made the most progress in developing specific policies and institutions suggests that a government programme dealing with organic agriculture may be both inexpensive and effective. Such a programme does not need a significant budget and numerous staff in order to work well. It requires clear ideas and close coordination with other government agencies and actors in the private sector, so that they can combine efforts and avoid unnecessary duplication.

On the role of NGOs

NGOs have played the most influential role in the emergence of organic agriculture, usually by promoting alternative models of production among indigenous farmers that are based on the use of local resources rather than on the purchase of external inputs. They have also played a major role in supporting small farmer associations in the adoption of organic methods of production and in selling organic products. Many of them have had close contacts with organic and fair-trade movements and have had sufficient know-how to help governments draft regulations and in negotiations with foreign governments. Selected NGOs with know-how and experience in organic production should be considered preferential partners for projects.