63825 MAY 2011 ABOUT THE AUTHORS NATALIE MACAWARIS Sowing the Seeds of Sustainability: A Case is Task Leader of the Agribusiness Linkages Program in the Philippines. Prior to Project with Unifrutti, IFC, and Smallholder joining IFC she worked as a marketing of�cer for an Banana Farmers in the Philippines agribusiness company, an associate aquaculture of�cer of the Food and Agriculture Smallholder banana farmers are beginning to understand that their old farming Organization of the United methods are contributing to the planet’s drying up or suffocating in �elds of Nations in Samoa, and a marine researcher for coastal garbage. They are convinced that they have to change their ways for the good of resources management in the their farms, their communities, and their children. But what really drives them to Philippines. adopt new and sustainable practices? What will ensure they continue to do so? COLIN TAYLOR is Program Manager of the Agribusiness Linkages Program IFC partnered with Unifrutti Philippines in 2008 to work with farmers to enable in Philippines. Prior to joining them to be certi�ed to the international Sustainable Agriculture Network standards IFC, he worked as an independent consultant of the Rainforest Alliance (RA).1 With concerted efforts from Unifrutti (the lead �rm) following a career in and IFC, smallholder2 farmers were trained to understand the RA standards and international agribusiness companies such as Unilever, auditing processes, buy into the concepts of environment and social sustainability, Chiquita and Geest. adopt new sustainable practices, and pass the certi�cation audit—all within 12 CARLA ZAMORA- months. GALINATO is Program Assistant of the Agribusiness Linkages Program This SmartLesson examines the dif�cult challenges of instituting change, as well as in Philippines. Prior to joining IFC, she worked as a Senior the necessary steps to ensure ongoing sustainability. Economic Development Specialist in the public sector focused on agribusiness development initiatives in Background private markets (e.g., supermarket standards). Mindanao, Philippines. Compliance with these standards can be Sustainable development is “development strictly enforced either by the public or private APPROVING MANAGER that meets the needs of the present without sector, depending on the political landscape TANIA LOZANSKY compromising the ability of future generations of a country. In the Philippines, government Regional Head of Advisory, IFC Advisory Services in East Asia to meet their own needs� (World Commission enforcement of E&S-related regulations is and the Paci�c. on Environment and Development, 1987). weak. Hence, certi�cation in the agribusiness Environment and social (E&S) sustainability sector to E&S standards has been led by the standards in agricultural development refer private sector and imposed by certain overseas to farming practices designed to maintain or markets (e.g., Japan). promote biodiversity and ecosystem integrity, and to ensure human welfare and safety. In the banana export industry, the exporters, Certi�cation gives farmers a stamp of large local and multinational corporations recognition that they adhere to these that also manage corporate plantations, are sustainable practices. certi�ed to several speci�c standards (e.g., ISO, GlobalGAP, and RA) to meet their buyers’ The E&S standards can be imposed by requirements or to enhance their market governments (e.g., as a regulation or position as socially responsible suppliers. These international trade requirement) or the corporations have the technical resources and 1 The Rainforest Alliance (www.rainforest-alliance.org) is an in- �nancial capability to readily meet any or all ternational environmental nongovernmental organization that certi�cation standards. promotes sustainable farming practices. 2 The smallholders can be cooperatives composed of members owning 1-2 hectares (ha) each or a family-type enterprise, owning The smallholder banana growers, however, 5–25 ha and leasing up to 200 ha. SMARTLESSONS — MAY 2011 1 Fig. 1. The change process in adopting sustainability standards. are not as able to comply with E&S standards as their costs were seen as a new additional burden on the corporate counterparts. Being on the producing end of the farmers. supply chain with little market contact, they lack knowledge of certi�cation standards. With little policing from the An added expense exacerbates the dif�culty of changing government, they do not follow the local regulations on behavior and mindset, given a natural inclination to resist proper use of agrochemicals, waste management, or change. While people feel good about protecting the provision of minimum wages and bene�ts to their workers. environment, the reality is that it costs money. It is an Furthermore, they barely meet the quality standards of additional burden that many people—from consumers to premium markets such as Japan because they have limited producers—do not willingly bear. In smallholder banana access to �nancing. Their produce is mainly directed to farming, pro�t margins are determined literally in cents; export markets that do not have stringent quality or thus every penny counts. standards requirements. With a national land reform policy turning corporate plantations over to smallholders, the The heaviest costs to meeting the certi�cation standards exporters are increasingly reliant on smallholders to supply are capital investments for farm infrastructures. Examples bananas. One such company is Unifrutti Philippines, which include: hazard-proof chemical storage and mixing areas, needed more Rainforest Alliance–certi�ed bananas to shower and toilet facilities for workers to remove chemical increase their market share in the specialized highland residues that may have stuck to their bodies, water recycling banana premium market in Japan. To do this, they required to conserve water, and �ltering systems to remove certi�ed bananas from their smallholders. contaminants from water coming from packing sheds before being released back into natural water bodies. These The project began in 2008 and ended in December 2010. structures are typically not built on smallholder farms. Lessons Learned There are also the annual costs of the auditing process and of maintaining an environmental services team or person 1) If you can’t offer an explicit price premium for on the farm to ensure standards are maintained. certi�cation, think twice about doing the project. Fortunately, the lead �rm, having the business imperative The most important questions that the smallholders ask of sourcing certi�ed bananas from smallholders to grow are: Will there be an additional increase in their price if they their premium highland banana market in Japan, gave the meet the certi�cation standards, and what are the costs incentive of adding a price premium to meeting RA involved? certi�cation. This premium enabled farmers to cover the certi�cation costs and increase their income. We learned In the pilot phase of the project, certi�cation premium was that having a clearly de�ned certi�cation premium makes not clearly de�ned, and it caused a lot of discord between farmer bene�ciaries more committed to adopting the farmer bene�ciaries and the lead �rm. Certi�cation sustainable practices. 2 SMARTLESSONS — MAY 2011 switching from herbicide to manual weeding, and getting new earnings from sorting and selling recyclable wastes. Clear monetary savings can hold sway in the decision of farmers to adopt sustainable practices even without the price premium. Given the dearth of data from farmers, we needed a good methodology to measure the environmental bene�ts (such as keeping natural water bodies clear of contaminants from farms) and social bene�ts (such as less health-related problems associated with farm activity) of sustainable farming. We developed an activity-based methodology to measure production costs and the impacts of sustainable practices at various stages of banana production. This can be adopted by farmers and, once applied, will help in determining further impacts of sustainability. In addition, we recognized some intangible bene�ts enjoyed by RA-certi�ed farmers. They gained increased con�dence and better negotiating power with lead �rms, and with banks for �nancing. The rigors of meeting international standards require discipline and organizational ef�ciency. Therefore, certi�ed farms are perceived to be well managed and disciplined, hence sustainable businesses. Because of this, they are able to negotiate better terms not just with their contracted lead �rm but potentially with other lead �rms when current contract terms end and new ones are negotiated (usually every 5 years). At least one bank mentioned that farmers who attain international standards certi�cation are more attractive clients. Meeting the RA certi�cation helps improve compliance with government regulations and demonstrates that the industry can be environmentally and socially responsible. The annual RA certi�cation is the best policing method to ensure not only that farms continually implement sustainable agriculture practices, but also that they comply with agricultural rules and regulations. Furthermore, in light of the tremendous pressure applied by local Worker without protective equipment (top). Local RA auditor environmental nongovernmental organizations (NGOs) interviews a farm worker wearing protective gear (bottom). and government units on the banana industry to mitigate the health and environmental risks brought by a perceived unsustainable farming practices such as the aerial spray3, 2) If there is no price premium, determine if operational the smallholders are now more able to show that they are cost savings and intangible bene�ts can provide enough cognizant of and actively mitigating these risks by being of a business case for farmers to adopt sustainable certi�ed to the standards of an internationally renowned practices. environmental NGO. In the second phase of the project, the certi�cation price Finally—as proof that certi�cation helps—when a major premium was established only for the highland growers, banana export market in the Middle East banned the entry who represent less than 10 percent of banana growers. To of bananas from the Philippines (as a consequence of convince the majority (i.e., lowland farmers) to adopt international trade politics), the smallholder farmers were sustainable practices without the bene�t of price premiums, greatly and adversely affected. Smallholders mainly send it is imperative that other bene�ts (cost savings and any their produce to the Middle East, as they have dif�culty increases in productivity) of sustainable practices be clearly meeting the stringent quality requirements of Japan. The quanti�ed. RA-certi�ed smallholder farmers, however, were not affected, because they had preferred supplier status and By working closely with the farmers, we discovered that were able to meet Unifrutti’s requirements for the Japan cost savings that resulted from sustainable practices could market. potentially offset the costs of meeting the certi�cation. 3 At the heart of the controversy was the aerial spray practice, which local NGOs and These cost savings could be achieved by conserving and local government units wanted banned. Aerial spray is still, by global standards, the recycling water, switching from chemical to organic fertilizer, most cost-effective and ef�cient way of combating the dreaded black sigatoka (fun- gal) disease in banana plantations. There are mitigating practices to minimize the risk of any of aerial spray’s adverse effects on workers’ and community health. SMARTLESSONS — MAY 2011 3 The lead �rm, Unifrutti, having the internal knowledge of the standards and the technical processes needed to meet them, mobilized their environmental services unit to train farmers on awareness, documentations, and audit process of RA certi�cation; conduct tours to RA-certi�ed corporate farms to gather ideas on practical ways to meet standards requirements; conduct internal audits to determine critical areas for change and guide farmers in implementation; and arrange the auditing process with RA. The business training improved the farmers’ skills in agribusiness management and organizational development. It helped them to better manage the process of complying with the standards and motivating their workers and fellow cooperative members to embrace the new sustainable ways of farming. Business training modules such as: “Change Management and Strategic Planning,� “Transformational Leadership and Values Formation,� and “Business Planning and Entrepreneurship� gave farmers the tools to understand why and how to adapt to a changing world that requires more care for the environment. To ensure that farmers continue to receive this type of training, trainers of a local business training service provider were trained to use these modules. The service provider chosen was one that has been providing annual training to farmers and cooperatives during the last decade. A DVD featuring the practical steps to sustainable agriculture practices under the RA principles was useful to farmers at RA-certi�ed farms and to other smallholders seeking to understand sustainable practices. It featured the actual experiences of farmers who had adopted sustainability and met RA certi�cation in the project. Produced mainly in the local language, the DVD can be an effective and inexpensive Burning wastes on farm (top). Enforcement of rules to protect the learning tool that farmers can readily understand and use environment (bottom). at their farms to motivate co-workers. Finally, three Filipinos were trained to become RA auditors. 3) Once a clear business case is established, four project Prior to the project, RA auditors were flown in from the elements are required for successful farmer certi�cation: United States or South America to conduct audits (usually in technical training on certi�cation standards, business Unifrutti corporate plantations). The local RA auditors training, �nancing, and availability of local auditing ensure that the auditing—and if necessary, re-auditing— capacity. Smallholders need to understand the full implications of adopting sustainable agriculture practices: the cost and bene�ts of meeting certi�cation, the resources needed, and the commitment required from them at the beginning and throughout the change process (Fig.1). Increasing the technical knowledge, business management skills, and �nancial resources of smallholders is crucial to meeting sustainability standards. Farmers lack access to �nancing for capital investments, knowledge of sustainability standards, and the organizational capacity to institute reforms in farm operations. In this project, the lead �rm providing the �nances for farm improvements and the training in RA standards and certi�cation process addressed these challenges. IFC provided the business management Fig. 2. Supporting mechanisms needed by smallholders to meet skills training that helped farmers embed the principles of ecostandards certi�cation. sustainability into their daily farming operations (Fig. 2). 4 SMARTLESSONS — MAY 2011 Improper storage of agrochemicals (top). Proper chemical storage and mixing area (bottom). vital, but it is only the �rst step. A sound business case and clear quanti�able bene�ts for adopting sustainable agricultural practices are the key factors in getting farmers to change their behavior. Support services that enable access to �nance and that provide ongoing training and education are critical to maintaining sustainable practices. Wastes discharged directly into natural canals (top). Proper wastewater management and treatment areas (middle, bottom). process can be quickly arranged, bring the audit expenses relatively lower, and make DISCLAIMER farmers more comfortable in interacting with SmartLessons is an awards them during the auditing process. program to share lessons learned in development-oriented advisory services and investment The smallholders have acknowledged that operations. The �ndings, without the signi�cant support provided by interpretations, and conclusions the lead �rm and the business trainers in expressed in this paper are those guiding them through the certi�cation of the author(s) and do not necessarily reflect the views of IFC process, it would have taken them much or its partner organizations, the longer, if ever, to achieve the sustainability Executive Directors of The World standards. Bank or the governments they represent. IFC does not assume any responsibility for the Conclusion completeness or accuracy of the information contained in this The Unifrutti, IFC, and Smallholders Banana document. Please see the terms Farmers Project in the Philippines provide key and conditions at www.ifc.org/ lessons on how to institute change and smartlessons or contact the program at smartlessons@ifc.org. increase sustainability. Changing mindsets is SMARTLESSONS — MAY 2011 5