This chapter presents the empirical foundation consisting of secondary data from Dacanay’s dissertation research, primary data from key informants, and major findings from the two cases representing agricultural social enterprises in the Philippines. The findings are divided into three sections, 4.1 introduction of cases, followed by section 4.2 challenges of tapping into niche markets, related to value chain issues and section 4.3 Creating opportunities for the poor to become self-sufficient, related to SEPPS.
Each section has sub-sections of topics that have been systematically extracted from the transcribed data by identifying topics and issues they have in common and/or emphasize. These topics are directly relevant and will be elaborated in the analysis.
4.1 Introduction to Cases
This section gives an introduction of my two cases and has the purpose to give the reader a short introduction and getting a handle of the enterprises and define the distinctions. Furthermore, it works as the foundation for the following sections and the analysis.
4.1.1 Case I: Healthy Sweets
Already in 1996, Betty More and her family acquired an agricultural land were there had been coconuts and banana plantation, in Panabo province, Davao region.
However, the production was low because the land had long been applied with
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 31! chemical inputs that ultimately eroded its natural fertility. So when they took over, they decided to convert the land into an organic farm. They start using organic and locally available materials in order to transform the soil to become more fertile and organic. Moreover, they planted a diversity of fruits and vegetables along with integrated livestock.
Within two years their production had increased and brought double the income from coconuts and bananas, while they could supply food for their household from their other planted vegetables.
But then the global financial crisis happened, and like many others, Healthy Sweets was affected to.
“The onset of the financial crisis in 2008 pulled down the price of the coconut. The price of the whole nut dropped from P8.00 per kilo to P3.00 per kilo.
This situation compelled us to look for viable alternatives and coconut sugar production was seen as the best option because of its health benefits and income potentials.”
(Business plan Appendix) They had to come up with new production that fit their land and a food product that had, in their opinion, a better potential in the market. In addition, Mrs. More had for many years been working with KATAKUS1, a women empowering social enterprise, set up to make paper out of fruit fibers. Community development and sustainable endeavors had always been embedded in Mrs. More’s values. However, KATAKUS was also affected by the finance crises of 2008. They sold lots of lampshades, booklets etc. to the European market, with specific solidarity support in Holland, but they too decreased in sales and clients where no longer interested in buying fruit fiber products. As a respond to all of this Mrs. More, together with her husband Mr. Ervin More, initiated the family-run social Enterprise in 2009. With the increased focus on coco sugar as a healthy alternative, due to its very low glycemic index, as well as a positive potential for a market share, coco sugar become their main product at Healthy Sweets.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1!http://womenkraftIkatakus.weebly.com!
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 32! 4.1.2 Case II: ALTER TRADE
Alter Trade Corporation traces its existence to the 1980’s when Negros was hit by a socio-economic crisis brought about by the collapse of sugar prices in the world market. Widespread hunger gripped Negros being a mono-crop region- after prices of sugar plunged in the world market.
Negros was then recipient of international aid, which later on proved to be unsustainable, thus giving rise to the concept of “trade not aid”. Particularly a cooperative in Japan reached out to Alter Trade by making sustainable impact through
“trade not aid”.
Alter Trade, is a derivative from alternative trade. Alter Trade Corporation (ATC) is founded as a fair trade organization guided by the fusion of the principles of social development and social enterprise through people to people trade.
People-to-people trade is the heart of its mission and the core of its activities. It is both commercial and visionary between producers and consumers hence, a simultaneous trading business and development process. This is the key element, which distinguishes Alter Trade’s approach from other development cooperation.
Alter Trade partners with agrarian reform sugarcane farmers and marginalized Balangon banana growers in Negros, Panay, Bohol, Northern Luzon, Northern Mindanao, South Cotabato and North Cotabato. It also works with various non-government organizations (NGOs) in the aforementioned regions.
Alter Trade boasts of its main products of organic muscovado sugar and naturally grown Balangon bananas that are sold locally and also exported to Japan, Korea, Germany, France, Switzerland, United States of America, Australia and Asian Countries.
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 33! Figure 3: Map of the Philippines
4.3 Challenges of Tapping into Niche Markets
This section is the empirical foundation, related to challenges of social enterprises tapping into a market and can be defined as value chain activities, and divided into following topics; ‘Production’, ‘Defining and reaching markets’, ‘Certifications of international standards’, ‘Supply, Demand, Quality and Volume’, ‘Towards international markets and ‘Government support’.
4.3.1 Production
The production/processing is the typically the beginning of most agricultural supply chains. It’s where, in this thesis context, the beneficiaries operates and where the product is created and that is why it is relevant to introduce the production/processing structures for the analysis of the beneficiaries and value chain.
Healthy Sweets runs a whole year-round production and they started with a production area and a 3-hectare farm. Now, there are farmers who supply sap/syrup.
Coconut farms are also being rented out from farmers at a higher price as compared when they do copra production (More, 2013).
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 34! Figure 4. Source: Healthy Sweets Coco sugar processing, created by the author, based on Healthy Sweets Business plan (2012)
Figure 4 show the processing of coco sugar. The sap is tapped from the coconut flower buds (and not from the coconut) and drips into the small container and is collected every four hours. This can potentially yield 1.5 – 2.5 liters per 24-hour day.
Tapping 240 days is estimated 480 liters sap turning into 60 kilo of coco sugar per tree, per year (Sarian, Manila Bulletin, 2014). It is classified as the new billion peso industry and much more profitable than copra (the coconut) (Philippine Coconut Authority, 2012).
Healthy Sweets has been provided free training from the Department of Science and Technology (DOST) in making the coco sugar, but there do exist more sophisticated methods, which are harder to reach. Mr. Haagen has looked into better options on making lower moist content and making coco sugar cubes. However, this required further investments, so as for now it is only in the research stage until the buyers increase their orders.
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 35! In order to support neighboring farmers, Healthy Sweets provided coconuts to 30 hectares of farmland owned by small coconut farmers, who all are Agrarian Reform Beneficiaries.
The coco sugar producers of Davao Region have conducted a value chain analysis of the industry of which Healthy Sweets is now implementing the recommendations together with the Philippine Coconut Authority. In addition, a Roadmap for the Coco Sugar Industry cluster is being developed for submission to the National Economic Development Authority (More, 2013).
Currently, Healthy Sweets is able to produce up to 12 tons of coco sugar after a 3 months preparation time to activate the neighboring partner farms. However, currently the orders are not that big.
Figure 5: Muscovado sugar production, Source: Created by the auther, based on Grand Muscovado Production (http://www.grandmuscovado.com)
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 36! Alter Trade started Muscovado is an unrefined brown sugar, locally known as “Moist Sugar”, and classified as a healthier sugar than white sugar, because of its unrefined chemical free process.
Harvesting the sugar cane happens anywhere between 5-16 months for the crop to be ready, typically an annual harvest between June and December. It is hard manual labor, cutting and carrying the almost 2 meters long canes onto the trucks and bring them to the crushing and processing facilities. The rest of the year, the sugar workers will not have much else to attend to, which is why sugar cane, at the end of the day, is known as the ‘lazy man’s crop’ (Abello, 2013).
Muscovado sugar is made from boiling the juice extracted from sugarcane until it evaporates, leaving only 30 percent of the original volume, which is then dried and allowed to solidify into dark brown sugar. Notwithstanding, Alter Trade managed to heavily increase their production, through better crushing machines:
“With the growing demand for Muscovado, Alter Trade Manufacturing Corporation (ATMC) was set up in 1992 and a modern muscovite plant capable of crushing 30 tons of sugar cane per day with juice extraction at about 70% was constructed. With this, Muscovado production reached 500 tons per year. The ATMC mill provided a market for the cane of the sugar workers who already owned their lands as agrarian reform beneficiaries”
(Dacanay, 2012:76).
The native Balangon banana grows in the backyard of people in the uplands (mountains), which grows wild and naturally, for Alter Trade pick up and buy from the banana growers on a daily operation (Parreno, 2013).
4.3.2 Defining and reaching markets
One main activity Alter Trade and Healthy Sweets is to try to identify and reach the right market and the challenges and issues with tapping into these markets.
Parreno (Alter Trade), states that locally, there is a very limited market for fair trade products. There are only few families in the Philippines who can pay the premium often associated with a socially produced product. There is a dysfunction between fair trade producers and fair trade consumers. Personal estimate is 1 to 20 wherein
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 37! fair trade producers are growing 20 fold while fair trade consumers are growing very slowly (Parreno, 2013). If this continues, there will be over supply.
“That is why the export market is targeted. Although fair trade products are becoming popular, it still has not entered the mainstream market.”
(Parreno, 2013) Twenty-five years ago, Japan proposed a “trade not aid” track towards developing the communities. Originally, muscovado sugar was the first product of Alter Trade being symbolic to the peoples struggle in Negros2 where Alter Trade communities are located. Unfortunately, it had a limited market and limited application at that time.
With Japan, who consumes limited sugar, as partner, Alter Trade had to look for other opportunities. Two years later, after searching for a product for the Japan market, Alter Trade decided on the Balangon banana based on the Japanese’ love for banana and because of the sweet-sour (koku) taste which the Japanese are very fond of. At the start, shipment was about two to three hundred tons a year. It then picked up to around two thousand tons a year (Parreno, 2013).
In 1989, with the muscovado sugar, Alter Trade was able to tap into the fair trade movement in Europe
”The European Fair Trade Association (EFTA), GEPA3 (a fair trade company in Germany), and OS3 (now Claro Fair Trade) formally introduced the idea of Fair Trade to Alter Trade during their visits to Negros.”
(Dacanay, 2012:76)
Moreover, GEPA was the one who, in the early 1990’s, encouraged Alter Trade to produce organic muscovado sugar due to an increase in demand of organic produce in Europe.
”With support from Bread for the World, a Protestant church-based development agency from Germany, Alter Trade started its Bio-Organic Conversion Program in 1994. It was in this year that the first certified organic Muscovado sugar was sold to GEPA”
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2!When the world sugar prices hit the lowest point in 1984, the people suffered famine affecting many poor farmers.
3 GEPA - "Gesellschaft zur Förderung der Partnerschaft mit der Dritten Welt mbH“ // "Society for the Promotion of Partnership with the Third world”!
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 38! (Dacanay, 2012: 77) Amongst others, GEPA and organizations linked up with Alter Trade, provided access to a solidarity market and played vital roles that enabled Alter Trade and its farmer partners to upscale their endeavor.
Currently, Healthy Sweets is only serving the local market in Davao City, which is just enough to sustain the business. However, with the interest of reaching out to neighboring farms and capability building in the community where Healthy Sweets operates, Mrs. More states that it is essential they reach export market because they have greater potential in buying bigger bulks of coconut sugar (More, 2013). Just recently, Healthy Sweets has been able to tap into the US market, with small initial orders to an SME, Cocobrio inc.4 based in New York. However, it has not yet picked up on stable and/or increased sales.
According to Mr. Padong (PhilSEN), the Philippines is ready to serve international needs and ready to export agriculture, which the country has been doing even before.
Thus, there is a real need to upscale the agricultural sector, to engage in the international market and to consider the bottlenecks of economies of scale. There are also the restrictions on permits, bureaucracy and certifications that most small producers, simply cannot comply with.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
4!https://www.facebook.com/Cocobrio!
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 39!
“Engaging the international market is basically institutionalizing a mechanism wherein the SE can actually produce the quality that the international market demands. Sometimes, the SE cannot produce that.”
(Padong, 2013) 4.3.2.1 Certification for the Market Standards
Certifications have become deterministic factors in consumer choices but these certifications are often expensive and out of reach to the average producer.
Thus, the development of fair trade consumers in the Philippines has been considered years ago, people are not really conscious of quality and traceability of products especially food. What is important to the people is survival, buying the cheapest available to be able to stretch their income. Fair Trade in the Philippines has not yet reached a critical mass consumer (Parreno, 2013).
“For fair trade to become a significant player in the market there is still a need to improve in organizing the consumers of fair trade.”
(Parreno, 2013) There is no conscious segment yet of fair trade consumers in the Philippines but there are fair trade producers and most of these fair trade producers are eyeing the market abroad (Parreno, 2013).
On the other hand, organic consumers increased for the past 5 years. This is primarily because of health issues. Even middle class consumers buy organic products if they have health issues. However, targeting international niche markets for fair trade and/or organic is much more favorable (Parreno, 2013).
In Negros, a fair trade campaign was initiated and a big fair trade of producers called Negros Island Fair Trade Federation (NOFTA) was established. The establishment of fair trade federation was done in anticipation of the zero tariffs on sugar in 2015 wherein it is expected that foreign sugar will flood the market and to be able to compete in the niche market. It is some sort of a safety net for the small sugar producers.
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 40! The Federation is still looking for European and US markets. There was an initial talk with a buyer from England already that specializes on fair trade. Right now, it is in the process of establishing an internal control system in preparation for the fair trade certification from international bodies (Parreno, 2013).
“Selling with the fair trade stamp which is a guarantee system helps especially in Europe. It provides confidence to the consumers to buy the product.”
(Parreno, 2013) In order to export, certifications must be obtained. Certifications are just guarantee systems for the export market but if a social enterprise wants to export its product to the niche market such as organic or fair trade to Europe for instance, certifications must be obtained from internationally recognized bodies such as Ecocert which complies with US and Japan standards. Meanwhile, local certifying bodies in the Philippines are not yet recognized internationally.
In Alter Trade’s case, the certification was obtained from the Institute for Market Ecology (IMO), a highly experienced international body for the inspection, certification, and quality control of organic, eco-friendly, and socially responsible products based in Switzerland. With just one inspection, Alter Trade got two certifications, fair trade and organic-agricultural certifications (Parreno, 2013).
The problem with a fair trade certification, there is an annual inspection. Alter Trade for instance has spent one million pesos for inspection alone and has consistently passed European standards (Parreno, 2013). To this Padong (PhilSEN) also expresses that their members are not fair trade members and will not be able to pay these amounts for annual inspections. But adds, that in their own context, fair trade is already embedded in theirs business (Padong, 2013).
For small to medium-sized enterprises, organizations such as the Alter Trade Foundation teach them the knowledge and skills on how to be able to comply with certification requirements. And to be able to reduce the cost of the inspection, the organization could look into partnering with other enterprises in the same area, have the inspection at the same time, and a result, it will spread the inspection cost.
(Padong, 2013)
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 41! Furthermore, there is a segment within the fair trade movement, which is called a participatory guarantee system. Essentially, the process of guaranteeing the product is left to the producer. This is not a 3rd party guarantee label. Banana does not have a 3rd party level label. Instead, the buyer comes 2 to 3 times a year to inspect the facilities. That is the 2nd party guarantee system wherein the direct consumers inspecting the facilities and handling of the communities, among others. This is only true for Alter Trade’s consumers in Japan. This type of guarantee system though is being pushed in the Philippines and in other countries as well to cut the cost of the guarantee system but it defeats the purpose of inspection (Parreno, 2013).
In the case of Japan doing the 2nd party guarantee system, the consumers from there are very large cooperatives. Members of the cooperatives themselves visit the area and communicate the guarantee through their regular newsletters (Parreno, 2013).
4.3.2.2 Supply and Demand, Quality and Volume
There are a number of requirements and challenges to address when a Social Enterprise have to meet the demands of the international market, particularly in quality and volume.
For Alter Trade to manage the quality of the supply of Balangon banana, they competed with other local traders in terms of price. Although the quality standards were/are much stricter than the local traders, the farmers opted to sell to Alter Trade.
But the challenges were, because these are wild mountain bananas, the supply is insufficient, and because of over-harvest, the supply depleted fast (Parreño, 2013).
Further, because of how the farmers cultivated the bananas, it was prone to disease. It came to a point when several areas in Negros, got devastated by the banana disease.
In order to meet the demand, Alter Trade expanded to other areas such as the northern Philippines, Cordillera, and Mindanao just to look for supply.
PhilSEN has expressed similar challenges in regards to supply. Members of PhilSEN are social enterprises at the village level and there are questions on volume and quality, in areas that are prerequisites if the social Enterprises want to engage in a bigger market. The COP provides them a venue to learn techniques, understand the market, and provide the network for them to achieve quality and volume (Padong, 2013).
Thesis: “Agricultural Social enterprises in the Philippines” by Jacqueline Hansen 42! Right now, there is a shortage of supply from the social enterprise production side to meet the market demand. The reason for this is for a social enterprise
“to engage in the market, there is economies of scale. Quality and volume matter in the market.”
(Padong,2013) This means that the agricultural Social Enterprises, in rural Philippines, should be able to meet the quality specifications and the volume to get the market (Padong, 2013).
Despite these social enterprises are into small-scale operations, it is still sustainable.
Sustainable in a way that these Social Enterprises take care of the environment and provide jobs. Furthermore, their operation provides them the basic income and projections show very good margin for them to operate in a longer period of time (Padong, 2013).
The most difficult part in completing the value chain up to the consumer is the level of production of its volume. To export, the cost per unit should be reduced.
Related to volume is quality. The bigger the volume, the more difficult it is to maintain consistent quality standard. And the price should be competitive. Even if there is a conscious market, there is still a competition on price. Thus, the challenges for export are volume, quality, price and delivery. For food especially, compliance with international standards is another challenge (Padong, 2013).
In Healthy Sweets case, Mr. Haagen stresses that Healthy Sweets would never be able to reach container size, which is a requirement in order to export. With coco sugar, producers must be able to supply 12 tons a month or else you will not be in business (Haagen, 2013). However, if they are the able to meet the supply volume, they will be in the elite of exporters. According to Mr. Haagen, Healthy Sweets is ready for that now, and they can activate 12 tons within 3 months, but will be able to supply the 12 tons monthly, and believes that this is sufficient for export markets.
Most producers are looking for investment or loans to be able to meet supply, demand, quality and volume. Yet, In the Philippines, it is impossible to get any kind