Organic Agriculture and Poverty Reduction in Asia: People's Republic of China
Agreement at completion point
Process and evaluation partnerships
Between 2001 and 2002, the Office of Evaluation (OE) of the International Fund for Agricultural Development (IFAD) conducted a thematic evaluation on organic agriculture in Latin America and the Caribbean. This evaluation, based on seven case studies in six countries, was meant to convey findings and lessons learned in view of a possible inclusion of organic agriculture as an investment option for an IFAD regional policy in Latin America to fight rural poverty.
As requested by IFAD's Asia and the Pacific Division, a second part of the thematic evaluation turned to Asia, to take stock of and evaluate a number of good practices among local institutions, non-governmental institutions (NGOs), bilateral and multilateral donors in India and China.
The initial approach paper, the methodology, and the planned output were formulated at OE and individually reviewed by an international team that comprises the Core Learning Partnership1 and the Team Leader. Given the innovative nature of the study, an independent and external Scientific Committee2 was created to review the draft evaluation, to ensure that the work meets international standards of quality. The evaluation was also reviewed by an independent International Advisory Panel3. Workshops in India and China were held to review and discuss the findings with the local stakeholders in order to arrive at a set of commonly agreed-upon conclusions and recommendations for future action. Further dissemination workshops and meetings were held in Italy and the USA.
Introduction and methodology of the evaluation
The primary goal of this report is to enable a better understanding of organic agriculture in Asia and to clarify how organics can serve or hinder small farmers and rural communities - especially poor ones. IFAD's Office of Evaluation undertook this evaluation to determine the role of organics in development programs and under what circumstances, if any, organic agriculture could be integrated into future poverty reduction strategies. The evaluation not only offers policy and strategy lessons to be considered when formulating IFAD strategies for rural development in China and India, but also offers practical lessons and recommendations for determining how organics can be integrated into projects by highlighting issues that must be considered at both the design and implementation stages.
The emerging market opportunities for organics appear to be conducive for the adoption of organic agriculture among small-scale farmers in India and China. However, some studies suggest that major constraints exist for small-scale farmers to reach these markets and at the same time secure a price premium, while other evidence suggests that it is possible to support farmers in their efforts to access organic markets and derive benefits such as increased premiums. For IFAD to consider including organic farming in its strategies and the projects it supports in these and similar countries in the region, it is essential to understand the factors that allow small farmers to resolve the most common problems related to the adoption, production and marketing of organic agricultural products.
The findings presented in this evaluation come primarily from the extensive fieldwork conducted between May and July of 2004 in Asia's two largest agricultural producers: China and India, where more than half of the world's farmers and two-thirds of the world's poor now live. A series of case studies were selected to be representative of a broad variety of situations. The selection parameters therefore included diversity in: agro-ecological zones, product types, organizational structures, geographic areas and market orientation. The study analyzes 14 cases, half of which were mini-reviews that depended on existing information. It investigates the main factors (agro-ecological, socio-economic and institutional) that hindered or contributed to the development of organic farming and it explores the realistic pros and cons of organic adoption in terms of poverty reduction (as measured by reduced risk, improved income and food security), food safety and trade. Taking a market-oriented, value-chain focus, it also addresses key investment issues and the organizational forms of organic agriculture such as adoption of standards, certification, civil society organizations and marketing channels.
These selections align in broad terms with the IFAD strategies in India and China, as noted in recent strategy documents and in staff discussions. Cases were selected from recognized poverty areas including some of the most vulnerable segments of society: ethnic minorities, tribal people and women. In India, for example, many of the cases included tribal populations, since these comprise only 8% of the total population but rank amongst the poorest and account for 40% of the internally displaced, a major characteristic of poverty. Most of the provinces where the case studies are situated are ranked among the highest poverty areas by several indicators. In China, for example, many of the cases are in relatively remote mountainous areas, where almost all of the 65 million officially recognized income-poor live. They are located where ecological issues such as soil erosion, water shortage and even desertification are prevalent. They concentrate on both staple foods as well as new high-value options. The cases address the institutional structures that support farmers and the relative contributions of each.
The case studies were a vital element to fill the information gap about the measurable detriments or benefits of organic agriculture in the areas under review. In order to provide a broader context in which to frame this evaluation, a more cursory research was conducted in a handful of other Asian countries. These countries have a history in organics (i.e. Japan and Thailand), provide important regional markets for Asian organics (Korea and Japan) or have substantial agricultural sectors where future organic approaches could be significant. In addition to this primary data, the evaluation has made use of more than 100 relevant publications that have been released in recent years, as well as unpublished information from several institutions and researchers in various Asian countries.
Main evaluation findings
Organic agriculture is a viable approach that can be suitable for smallholders. It can be particularly useful in the more difficult environments, where resources are scarce and cultivation is problematic. It also potentially serves to reduce risk by encouraging localized input production, fostering soil and water conservation and encouraging the diversification of production.
Characteristics of organic production and markets
The switch to organics from traditional cultivation methods tends to increase labour costs but has positive consequences in terms of yields and provides better incomes for traditional producers. When switching from intensive forms of agriculture to organics, labour costs are higher, input costs are lower, yields may be reduced and overall income is higher. Yields often decrease in the first year of transition to organic production. By the third year, yields have typically stabilized. Yields tend to stabilize at lower levels; however, some of the more sophisticated farmers are able to improve yields with organic methods. Measuring total farm yields is more appropriate than measuring single crops, since some diversification away from single cash crop production is characteristic of organics. In many cases, organic systems are more profitable than conventional ones and more than make up for reduced yields or productivity that may occur during transition, primarily due to price premiums.
Greater income is the reason most farmers give for converting to organic agriculture, followed by health, ideological and environmental reasons. First movers tend to be farmers using traditional methods of cultivation and farmers with access to certification and marketing.
In the cases of China and India, where domestic market channels for organic products are limited and the primary orientation is toward export sales, a surprising number of producers are focused on the local benefits of organic production. In such cases, the reasons cited for being organic were lower production costs, improved soils, fewer toxic chemicals, self-reliance in inputs and harmony with nature.
Many market-oriented organic farmers have some support systems for certification and marketing to induce their adoption of organic practices. The most difficult hurdle for small farmers to surmount is the lack of adequate technical advice on production technology. The second most important requirement is market information or promotion. Financing for transition or expansion was ranked next in importance, followed by lower cost of certification and then assistance with quality management and internal control systems.
There is generally adequate availability of organic inputs and most organic projects do not suffer from negative plant health or soil fertility issues. Instead, many note improved soil characteristics. Organic systems work particularly well with livestock components, especially in less fertile areas. Livestock can facilitate fertilization; provide power and fuel; and is an excellent source of food security and income diversification.
Given that labour requirements are generally higher than in conventional systems, organic agriculture can prove particularly effective in bringing redistribution of resources in areas where the labour force is underemployed. This can help contribute to rural stability, especially where labour is abundant and migration occurs. Increased labour costs are sometimes also part of farmers achieving higher standards that are required to receive a higher price.
It is important to note that the markets for quality safe foods —for which organics are particularly well suited — are large and are likely to continue growing strongly. While organic premiums are very high in a few markets, the global experience is somewhat less promising as more and larger producers enter this lucrative niche. Established organic commodities like rice, sugar and coffee have already seen considerable reductions in price premiums. Promises to farmers about enormous market profits may prove to be misleading, especially after the two-three years it typically takes to be certified.
While the absence of synthetic agrochemicals is one component of organic farming, there are also significant other requirements, such as meeting a number of production and environmental standards and keeping adequate records. For farmers, developing and managing their own Internal Control Systems allows them to become better prepared to manage the plethora of other standards that are increasingly mandated for trade, through minimizing compliance costs and improving their association's responsibility and management skills. Certification is costly for small farmers and often not in the name or control of the farmers that are certified. This limits their market options to those dictated by the certificate owner and possibly diminishes their interest and commitment to organics.
Global organic sales have achieved double-digit annual growth for more than a decade. While organic sales represent a small portion of the domestic market in China, the value of exports has skyrocketed. Because of their rate of growth in the past decade, their similarities to organics, and their sheer volume, China's certified Green Foods are one of the most successful eco-labeling programs in the world and well worth understanding, since they set a precedent for organics. Annual Green Food sales nearly match the size of the USA organic sector. In India, organic development has —until very recently— focused predominantly on farmer welfare and localized benefits rather than market development. Both China and India have experienced a dramatic rate of growth in amount of hectares certified organic.
Impacts of organic agriculture and the pros and cons of adoption
Organic farming systems embody many elements of sustainability that make them suitable tools to reduce poverty:
- long-term commitment to soil fertility, particularly addressing soil erosion and degradation or desertification;
- reduction of external energy consumption and the reduction of water use;
- knowledge-intensive rather than capital and resource-intensive; coupling traditional knowledge with modern methods such as bio-controls and efficient nutrient management;
- integration of traditional knowledge, joint problem solving, and farmer-to-farmer exchange can improve community relations and lead to greater involvement and commitment of producers.
For small and poor farmers, organics can be an effective risk management tool that reduces their input costs, diversifies their production and improves local food security. For rural communities it can provide improved incomes, better resource management and more labour opportunities. For agricultural competitiveness, it meets the increasing demands for improved food safety methods and traceability that are becoming the hallmark of high-value agricultural trade. For governments, organics reduce the possibility of environmental contamination, reduce the use of chemical inputs (often imported) and minimize the public health costs of pesticide poisoning. For nearly everyone involved in its production, processing and trade, organics quite simply earns more money.
Today, the shifting regulatory, business and consumer environments are inducing fundamental changes in the global trade regime, that increase the demand for quality and safety standards. Organic methods can actually help producers to overcome barriers to entry that are presented by such standards, as organics intrinsically meet many emerging trade standards. This, in turn, has profound implications, especially for small and medium producers.
Although both China and India have a considerable amount of organic or ecologically friendly agriculture, like most countries their agricultural policies have not favoured organic agriculture. However this is quickly changing, as the fiscal and risk benefits are increasingly realized at the government level.
The following recommendations have been derived from the Thematic Evaluation on organic farming in China. They intend to guide the further process of promoting organics as a tool for poverty reduction.
Sequencing of planning and adoption
IFAD and its partners should assure that planning integrates appropriate sequencing of the planning and adoption measures to improve the likelihood of success. Three steps need to be included in all project planning to be successful: a) to clarify the specific aims of conversion with the participation of stakeholders; b) to conduct an analysis of the realistic changes needed, the requirements and the risks; and c) to design a future farming system with organic experts and the full participation of all stakeholders.
It is recommended that IFAD's market-oriented projects also include preferably two pre-assessments. First is a feasibility study of existing market opportunities, costs and risks for the products being considered. This should include a sensitivity analysis for variations in the organic premiums to ensure that the project's success is not completely dependent on price premiums that are likely to change. Second is a cost-benefit analysis to evaluate the expected differences between an organic approach and current cropping system, in order to properly assess the set of impacts that would result of the potential reduction in yields and change of cultural practices. It is suggested that any small farmer project also studies the feasibility of adopting organic methods if resource-poor small farm families lack fertilization options such as livestock and green manure.
Since organic farming is primarily knowledge intensive rather than chemical intensive in terms of application of agro-chemicals, it is difficult to establish a one-size-fits-all approach because conditions will vary in different zones. It is therefore vital that IFAD and the Government's organic strategies build adequate time into the learning process. Initiatives need to be committed to supporting a multi-year process for farmers to test and learn new technology and methods. Such a commitment will require:
- The Government and IFAD to establish adequate time frames of at least five years for organic initiatives.
- IFAD-funded projects can help farmer groups to establish the necessary strategies to achieve certification if necessary and provide the initial information required for farmers to prepare for certification. Similarly, the project can initially cover the cost of certification, especially if it is not a high-earning cash crop.
- It is proposed that the Government and IFAD work together to ensure the availability and testing of appropriate inputs, such as professionally bred organic seeds and useful cover crops, particularly in targeted project areas.
- The Government can provide incentive in the form of limited and temporary financial support, particularly for intensive farmers to cover yield declines during the approximately three-year transition period, so that they do not abandon the effort in mid-stream.
Institutional support systems
Perhaps the single most important factor for successful organic adoption is the availability of reliable institutional support systems that can initially help provide the many components that farmers find difficult to access. These include technology, initial financing for certification and input production and marketing.
- The Government can serve to integrate broad and relevant knowledge sources into organic initiatives, and not just provide general information. Investment in a knowledgeable extension service is critical. The Government and IFAD should facilitate the acquisition of adequate technology and training, especially for extension service agents and farmer groups.
- Since organics demonstrates a "public good" aspect, the Government could consider to develop a fund for farmers to access for the initial financing needed for certification and for the investments required to establish organic systems, i.e. vermicomposting, biopesticide production.
- Local know-how, especially from experienced farmers and knowledgeable elders, can smooth the transition and reduce risks with their specific crops and agro-ecological conditions. The Government can encourage such sources by formally acknowledging their value as "innovative farmers" and exploring ways to stimulate them such as offering special training or tax incentives if their properties serve as model farms to teach others. Farmer-to-farmer learning models are well suited for this situation.
- It is also important for the Government to provide farmers good access to other external sources of knowledge about the application of organic methods, especially linkages to broader sources of research and knowledge about organic methods from international research institutions [Forschungsinstitut für Biologischen Landbau (FiBL), Rodale, etc.] and organically oriented organizations in other countries. These knowledge hubs are facilitated through Internet access and the establishment of farmer-friendly databases through the relevant government agencies.
- The Government can provide initial impetus to establish organic trade fairs for marketing and the exchange of ideas.
Project designs should address the organizational aspect of the targeted farming community. The farmer organization could be considered as a central aspect of a strategy aimed at using organic agriculture as a tool for poverty alleviation in rural areas. However, approaches targeting individual farmers should not be neglected. Organic conversion can involve a prolonged agricultural learning process as well as challenges in certification, meeting standards and marketing, therefore local organizations are required to maintain such continuity. Addressing these needs permanently and cost-effectively will require strengthening viable field-level organizations that are representative of their constituents.
The Government can facilitate the emergence of farmers' associations by publicly acknowledging their value and supporting their formation. IFAD can help with capacity-building at farmer level by strengthening the internal management systems of local farmers associations, so that these can help to provide more local training and advisory services.
Project designers would propose design indicators of success that go beyond common measurements, such as the quantity sold and profits earned, to also monitor impact and sustainability that include farmer organization's empowerment and capacity-building.
Ultimately, a market-oriented value chain ought to be developed that takes full advantage of each partner's strength, in order to fortify competitiveness while also ensuring a fair share for producers. A critical factor in this is the necessity to integrate marketing support into organic development policies and projects. Organic markets are not always readily accessible. Helping farmers to first assess their market orientation and then access targeted organic markets often requires some specialized help.
Since many NGOs and farmer associations often lack the prerequisite business skills to negotiate the various aspects of marketing, IFAD funded projects can help to organize an apex body or a network of organizations that can then be fortified with professional support and training in order to take advantage of scale economies, improve bargaining and significantly reduce transaction costs. A private sector partner with such linkages (an NGO or private consultants) can, at least initially, provide marketing services. IFAD and other development agencies have a role in supporting this process and helping to ensure a measure of equity for smaller farmers. It is not necessary to turn a farmer into a trader, but it is important to strengthen a farmer's knowledge and position so that s(he) can effectively negotiate with a trader or private sector partner.
Local commitment and control of a project is critical to ensure farmer benefits and long-term sustainability of the development processes it promotes. It is useful for IFAD initiatives to encourage farmers' associations to take up as much responsibility for critical aspects of the supply chain as feasible. This includes responsibility for quality management, some extension services, input production (planting material, fertilizer, etc.), internal verification, and most importantly, certification. The ownership of certification shall be preferably controlled by the farmers so that they are not forced to sell their produce only to the certificate owner, but can have the option to select different marketing opportunities and more effectively negotiate with buyers.
Test contract farming systems
As large businesses become increasingly interested in the benefits of organics, contract farming systems could be one of the options to provide mutually beneficial partnerships between farmers and firms. Typically, firms provide support to farmers in terms of inputs, technology, certification, and market access. Farmers of course provide the necessary products but can also provide quality management, internal verification systems and can handle certification. When there is a balance of roles and farmers have a measure of self-determination there is a greater likelihood of success. However some caution is warranted since at least some of a firm's goals, such as maximizing profits, may be in opposition to the best interest of farmers. Farmers are usually not adequately organized to ensure a fair relationship with the more powerful firms.
The Government plays an important role in support of farmer organizations at the outset and can help ensure equity in their partnership with private companies, by ensuring that contract law is adequate for such approaches and by examining the fairness and accessibility of the local judicial system or local mechanism necessary to effectively enforce contract law.
The Government, IFAD and partner agencies can make sure that such contract arrangements include the following conditions:
- Equal participation of all parties (minority people, women and small households) should be ensured in decision making around an organic project.
- Fair share of the economic return for both sides is written into contracts.
- Responsibilities and obligations of parties involved should be clearly stated in the contract.
- Integration of a good internal quality management system to help ensure quality, traceability and organic compliance.
Invest on innovators
IFAD can be effective in achieving adoption of organics by identifying leading farmers, preferably from the poorer strata of the target group, who have a personal or professional interest in organic agriculture, rather than trying to convert entire communities if the communities do not have a shared interest and belief in organics. Therefore the focus should be on good extension to teach and support likely converters, instead of general promotion to stimulate conversion. Stakeholders that are likely to convert tend to have personal commitment and a socio-cultural understanding of the interconnectedness of farming and natural systems in their environment; this is likely to also keep them motivated during the difficult parts of the process.
Procurement for schools and hospitals
In recognition of the valuable positive externalities intrinsic to organics, it seems appropriate to reward such values wherever possible. The Government could offer incentives such as public purchasing to stimulate both a basic market demand for organics and improve public exposure and information for them. For example, several European countries, particularly Austria, have pioneered the use of organic foods in public institutions that range from hospitals to government offices wherein procurement guidelines express such preferences. Organic food programs in schools would be ideal, especially in poor areas where smaller farmers with limited access to large urban markets can more effectively meet such local demand. Given the importance placed on children's' food safety, this could be a natural fit.
Correct "anti-organic" biases in public policies
If applicable, any negative biases in public expenditures that favour conventional agricultural systems and discriminate against organic systems ought to be identified and improved alternatives formulated. For example, although China has considerable investment in research and extension services for conventional agriculture, it lacks similar investments that would be in keeping with the relative importance of organics. Consequently there is only little significant applied research in organic technology and since extension services are not trained in any organic methods they are therefore unable to offer farmers an organic option or the necessary knowledge in this area.
The Government can identify priority areas in which to craft pilot training projects for extension services and test methodologies for doing this. It is suggested that relevant parties including NGOs, the State Environment Protection Administration-China, the Organic Food Development Center-China would be involved in the design stages along with organic experts and farm leaders. Existing poverty mapping systems can be utilized to ensure that the selection criteria identify areas with smallholders and high poverty levels. IFAD can assist in developing the criteria based on the Fund's long experience in working with poor communities and its projects can help to train the local extension services and improve their ability to reach farmers that most need this.
Systematic assessments of the current agricultural research system, with the support of internationally renowned organic institutions, can serve to rapidly identify the research categories that can have the most immediate and important impact and then design a sequenced learning approach that will contribute to key organic improvements. Achieving the goals of the identified research would require the government's budgetary commitment for at least five years and possibly the identification of alternative resources, such as international organic institutes to contribute their know-how. The Government can further improve farmers' benefits by establishing a consortium of learning institutions on this topic and funding the secretariat and its database. This can build on the existing China National Green Food Development Centre efforts with the Organic Farming and Green Food Information Network (OFGF.NET).
1/ The members of the Core Learning Partnership that contributed to the evaluation learning process were: Jean-Philippe Audinet, Policy Coordinator, Policy Division, IFAD; Ranjit Banerjee, Joint Secretary, Ministry of Finance, Republic of India; Wang Bing, Director, International Financial Institution Division IV, Department of International Affairs, Ministry of Finance, People's Republic of China; Edward Heinemann, Regional Economist, Eastern and Southern Africa Division, IFAD; Vincenzo Galastro, Programme Manager, External Affairs Department, IFAD; Cristina Grandi, Representative, International Federation of Organic Agriculture Movements (IFOAM); Raúl Hopkins, Regional Economist, Latin America and the Caribbean Division, IFAD; Shyam Khadka, former Country Programme Manager, Asia and the Pacific Division, IFAD; Mylene Kherallah, Regional Economist, Near East and North Africa Division, IFAD; Thomas Rath, Country Programme Manager, Asia and the Pacific Division, IFAD; Ganesh Thapa, Regional Economist, Asia and the Pacific Division, IFAD, Nadia El-Hage Scialabba, Senior Officer, Environment and Natural Resources Service, Food and Agriculture Organization of the United Nations (FAO); Cristiana Sparacino, Programme Manager (Gender), West and Central Africa Division, IFAD; Douglas Wholey, Technical Adviser, Technical Advisory Division, IFAD. The lead consultant was Daniele Giovannucci, and the lead evaluator was Paolo Silveri, Evaluation Officer (OE) in collaboration with Lea Joensen, Associate Evaluation Officer (OE).
2/ The external Scientific Committee consisted of Jikun Huang, Professor, Chinese Academy of Sciences; Alain de Janvry, Professor, University of California at Berkeley; Gunnar Rundgren, President, IFOAM; M. S. Swaminathan, Chairman, M S Swaminathan Research Foundation; and Raffaele Zanoli, Professor, Polytechnic University of Marche.
3/ The International Advisory Panel comprised experts from: Asian Development Bank (ADB), Associazione Italiana per l'Agricoltura Biologica (AIAB), Asian Institute of Technology (AIT), Danish Agricultural Research Center for Organic Farming (DARCOF), Knowledge Networking for Rural Development in Asia/Pacific Region (ENRAP), FAO, Forschungsinstitut für Biologischen Landbau (FiBL), Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), Hong Kong Organic Resource Centre, Center for International Forestry Research (ICIFOR), Research Foundation for Science, Technology and Ecology, IFOAM, International Food Policy Research Institute (IFPRI), Japan Organic and Natural Foods Association, Organic Trade Association, (OTA), Tufts University, and the World Bank (WB).