guide on inclusive green growth businesses

II/MB.-RESOURCE GUIDE ON GREENING AND INCLUSIVE AGRI AND AGRO ENTERPRISES, GIZ-DA-NCI

RESOURCE GUIDE ON GREENING AND INCLUSIVE AGRI AND AGRO

ENTERPRISES

PROJECT:

GREENING OF AGRI-BUSINESS AND AGRO-

ENTREPRISES NATIONAL CONVERGENCE INITIATIVE

FOR SUSTAINABLE RURAL DEVELOPMENT

Contracted by: GIZ Developed and Implemented by: Marian Boquiren and Ivan Idrovo - LATINSASIA

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SECTION 1: WHAT DO WE MEAN BY INCLUSIVE AND GREEN BUSINESSES? Our objective is to develop agri-businesses and agro-enterprises that contribute to sustainable growth in the convergence area with the potential to be competitive in increasingly discerning markets and with significant livelihood generation and broadbased participation of marginal farmers, fisherfolks, and poor households in general. This Guide is intended to be used as a resource on possible instruments, methodologies, and concepts on greening of agri- and agro-enterprises. This section of the Guide elaborates on what we mean by “Green and Inclusive Businesses” and its significance and importance to economic development.


Increase of mean temperature; changes in rain patterns; increased variability both in temperature and rain patterns; changes in water availability; the frequency and intensity of ‘extreme events’; sea level rise and salinization; perturbations in ecosystems, all will have profound impacts on agriculture, forestry and fisheries (Gornall, 2010; IPCC, 2007a; Beddington, et al,. 2012b; HLPE, 2012a; Thornton et al., 2012). Reducing greenhouse gas (GHG) emissions continues to be critical to avoid unmanageable climate change, but businesses must also build their resilience to unavoidable and ongoing climate change by managing climate-related impacts that threaten their value chains, while planning for emerging market opportunities .The main direct sources of GHG emissions in the agricultural sector are not only carbon dioxide (CO2). Agriculture is a source of nitrous oxide (N2O), accounting for 58 % of total emissions, mostly by soils and through the application of fertilizers, and of methane (CH4), accounting for 47 % of total emissions, essentially from livestock and rice cultivation. These emissions are dependent on natural processes and agricultural practices, which makes them more difficult to control and measure. On the other hand, agriculture is a key sector that, along with the forestry sector, if managed effectively. Can lead to biological carbon capture and storage in biomass and soil, acting as “sinks”. Their management can play an essential role in managing climate


change (IPCC, 2007b), especially in the long term (GiZ, 2013). When looking at challenges and opportunities to reduce GHG emissions using agriculture, it is important to look beyond the farm, vertically into the whole food chain and horizontally across impacted land and water bodies.

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Inclusive business – the inclusion of the poor as consumers or producers – and green business – reducing environmental impacts – are often highly interlinked. Inclusion without greening can lead to pollution, ecosystem decay and depletion of natural resources – all of which ultimately harm the poor. Growth trajectory of economic systems ultimately depends on the sustainability of the environmental system. It is the greenness (sustainability) of the sector that provides a sustainable basis for food security and on which community


livelihoods can rely. Improved environmental management and sustainable production can improve competitiveness and profitability. It can create or enhance competitive advantage. Focusing on greening to the exclusion of the poor can create resistance and make environmental business models increasingly difficult to implement. Economic incentives are critical to promoting green outcomes because they change behaviour in a manner that typically leads to least cost solutions. Poverty is one of the root causes of environmental degradation. What is needed, therefore, is a business model that is both environmentally sustainable and meets the needs of the poorest and most vulnerable. Social and economic impacts from green growth initiatives will be greater and broadbased if efforts at the outset are made to make the business model inclusive. Promoting green inclusive business models is a particularly promising approach in shifting towards more sustainable growth patterns that have a large impact on poverty reduction. For agro- and agri-enterprises, this translates into pursuing a triple bottom line: people, planet, profit.

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‘Inclusive business models include the poor on the demand side as clients and customers and on the supply side as employees, producers and business owners at various points in the value chain. They build bridges between business and the poor for mutual benefit.’ (UNDP 2008: Creating Value for All). The promotion of inclusive growth involves integrating large numbers of poor households (microenterprises, smallholders, laborers, etc.) Into competitive markets where they can contribute and benefit as producers and consumers. Greening, on the other hand, focuses on rationalizing the natural inputs into the value chain and controlling the outputs affecting the natural environment. In relation to inputs, this includes improving efficiency and renewable capacity in terms of water, energy, material, building, land and tools. In relation to outputs, the approach focuses on wastage and pollution, drawing on methods of pollution control, cleaner production, eco-efficiency, life cycle assessment, closed loop production and industrial ecology (OECD: Green Value Chains to Promote Green Growth). Specifically, green agri- and agro-businesses: a) Makes sustainable use of natural resources b) Maximize economic benefits from use of renewable resources while minimizing

environmental harm c) Utilize energy efficiently d) Conscientiously and proactively reduce emissions at all stages of operations e) Practice recycling f) Proactively reduce the negative impacts of outputs at every stage of the value chain.


Inclusion and greening are important for building stable business models. A green and

inclusive supply chain means that all actors work together to bring products that consumers

value at the most and effective and efficient way and with the least ecological impact. The

benefits to the poor will derive from greater integration into value chains resulting in higher

and more stable income, improved capabilities to get a higher share of the margin, and

diversification of options.

It is anchored on the participatory identification of supply chain constraints and opportunities that have the greatest impact on improving competitiveness and the creation of eco-friendly income-generation opportunities. It involves providing the poor with the means and platform to build and judiciously utilize available assets (human capital, financial, social, physical, and environment/natural) within the context of sustainability in order for them to take on critical value chain or support market functions. At the same time, it also entails strengthening the ability of value chains to penetrate more lucrative or differentiated


markets and thus enable them to provide more opportunities for the gainful participation of the poor.

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Economic incentives are critical to promoting green outcomes because they change

behaviour in a manner that typically leads to least cost solutions. Pursuit of bigger and more

lucrative markets as well as improved margins and transparent and equitable distribution of

benefits can potentially trigger chainwide upgrading and closer coordination. Consumer

interest or growing market demand can attract players to the change initiative.

Adapted from Rolle:


Final consumers or end markets of the product determine the characteristics of the final product which in turn should be translated to specific product features and characteristics. The demands of the end market drive quality and standards and, consequently determine how a value chain and businesses can achieve competitive advantage in terms of efficiency, differentiation, and demand. It requires a shift in thinking from supply push to demand pull. A better understanding of consumer behavior and attitudes is needed for supply chain actors to identify opportunities. A green and inclusive value chain focuses on understanding what it is that consumer’s value and then delivering it as effectively and efficiently as possible. In other words, a business must be effective in maximizing the opportunities for adding value in the eyes of the consumer (e.g., in GanaVida example, using natural materials and agri-waste as materials for inputs assure the customers that pork and chicken products are free of harmful chemical additives) and efficient in adding value, producing, processing and distributing at the least cost and ecological impact.

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Supply chains are generally highly segmented, with little organization or communication between participants. Additionally, quality perceptions are different among players at different levels of the chain. Farmers’ perceptions of quality are based on local norms, the procurement practices of local intermediaries (who often sold to different channels and had no consistent norms), and their own guesses as to what would bring higher prices. Downstream actors based their understanding of quality on the requirements set by their buyers. In many cases, there is no uniform understanding of standards which result to higher costs of transactions (environment and financial). The value chain approach to agri and agro-enterprise development seeks to do more than just link farmers to buyers: It endeavors to facilitate changes in behavior and improve the quality of relationships between and among players to increase the competitiveness of the chain, while ensuring a broad distribution of benefits, skills and income at all levels of the industry and environmental sustainability. Actors at all functions in the chain must have common or strongly compatible objectives or interests, a strong focus on end market requirements, and a good understanding of markets and the external environment (e.g., competitors). The quality of relationships and degree of trust influence the ways that benefits (and risks) are shared among actors. A high level of satisfaction and trust in a relationship has a positive effect on the degree of cooperation and, consequently, motivation for upgrading. Certification is one way to address issues of mistrust in a value chain because it moves the trust relationship to an objective third party (the certifier). Strategies that focused on the social aspect of relationships and improving in communication could also be used to improve trust and build relationships.


An ideal situation is a “closed-loop economy” where nearly all outputs either become inputs to other manufacturing processes or are returned to natural systems as benign emissions rather than as pollutants. For agro- and agri-enterprises to pursue green upgrading and strive to achieve a closed loop economy, they must have access to technologies that are: a) Compliant with improving efficiency and renewable capacity in terms of water and

energy use b) Remove harmful chemicals from production processes c) Reduce the waste footprint in the value chain Making these technologies accessible to marginalized and resource poor communities entail creation of new business models and innovative distribution channels. It may also involve engaging lead firms in asset and technology transfer initiatives and provision of safety nets to the poor by promoting these within the context of business gains/growth rather than as a purely philanthropy driven initiative. Likewise, willingness and incentives of private firms to contribute to asset building, technology transfer, and provision of safety nets depend to a significant extant on the degree of competition that the firms are facing and the end markets they are working with. Generally, firms working with higher end markets are more


inclined to support technology transfer initiatives than those dealing with low end or commodity markets. To ensure inclusion and facilitate chainwide greening, it is important to make learning and acquisition of technology easy, affordable, and accessible.

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Greening and upgrading demand a commitment of financial resources. As such access to

financial services is very important. It is often advisable to start with easier, low-risk

improvements that will more quickly yield results. This strategy builds confidence and buy-in

among value chain participants, helping them use initial benefits to invest in the next stage

of upgrading.


Greening of agro- and agri-enterprises also requires the development of “green” providers to support upgrading initiatives. Parallel to this is the need to develop business models and systems to make these services accessible and affordable to resource poor households. Service delivery and payment schemes can be classified as follows: Fee-based services: offered as distinct services for which enterprises pay a fee or via commission. Commission-based payment is particularly attractive to enterprises that are unwilling to gamble money on the success or failure of purchased services. Commission-based services allow clients to pay for services after they have sold their products, thus enabling poor entrepreneurs to access services without having to pay for them upfront. Embedded services: provided within a buying or selling transaction, whereby the costs of the service provision form part of the overall cost calculation of the supplier, while the service user does not have to pay for service delivery. Embedded services are an added feature to the main business transaction. To take a typical example: an agricultural input supplier provides his clients, in addition to delivering fertilizer, free-of-charge training on how to apply it correctly. In this case, the farmer obtains access to training, while the input supplier benefits from repeat or increased sales. Embedded services are also commonly provided by buyers. Informally provided services: information, knowledge and advice available to enterprises through other business or social relationships. This could include information and advice on price, market and technology trends through social networks or mediation through traditional cultural mechanisms. Commercially sponsored mechanisms: Example of this would be radio broadcast programmes focusing on business development issues. Whereas the magazine-style programs include business tips to cover the issues of most interest to their listeners, the radio stations derive their revenue from companies that aim at using the target audience for advertising purposes.


The development of green and inclusive markets will heavily depend on the facilitating role

that government can play. To foster inclusive and green innovation, policy-makers, with

donor support, can make interventions in three policy domains (UNDP Global

Compact/DCED: Policy Measures to Support Inclusive and Green Business Models):


a) An appropriate infrastructure for markets, including physical infrastructure, and also regulatory frameworks that are stable and secure, yet flexible enough to allow room for experimentation. Regulatory stability starts with the general business environment: rule of law, security and the protection of property rights provide the basis for business models that take a long-term perspective on social and environmental change. Reducing corruption and clientelism can directly help to strengthen ecosystem governance, and empower disenfranchised groups, like ethnic minorities, traditional communities, or disadvantaged groups like women. The implementation of regulation and quality standards for inclusive and green innovation, along with adequate competition policy, can secure the prevalence of high-quality suppliers who seek to build business models offering long-term stability. Such stability would provide a level playing field for organisations seeking to implement genuinely inclusive and green business models that are forced to compete with businesses simply seeking to exploit loopholes in environmental or social governance.

b) Subsidy and incentive systems for green and inclusive innovations, helping mission-

driven pioneers to survive during the pioneering phase, and allowing all players to realise market-wide strategies and economies of scale.

c) Facilitate cooperation and partnerships between actors, and provide them with the

appropriate learning environment to make achieving inclusion and greening a reality


Green and inclusive enterprise respects the environment by minimizing energy and materials use and by reducing waste generation. These practices reduce the firm's operating costs and liability exposure. Green and inclusive practices can help businesses ensure a reliable supply of raw materials, enhance relationships with stakeholders and communities, platform for market differentiation, and open up new opportunities at the same time – such as enhancing brands and meeting new market demands.


EXAMPLE: GREEN AND INCLUSIVE BUSINESS MODEL Excerpts from Business Model prepared by enterprise under the guidance of Latinasia Marketing.

The Batang Malaya Integrated Hog and Feed Enterprise is owned and operated by families in Aroroy – Masbate with high incidence of child labour. The enterprise aims to provide supplemental income to families with high incidence of child labour and marginal households as a platform for reducing incidence of child labour parallel to ensuring that economic benefits from use of renewable resources are maximized while environmental harm is minimized. The enterprise will work together with their buyers and suppliers to bring pork products that consumers value at the most effective and efficient way and with the least ecological impact. The enterprise operations will be based primarily on two principles:


• Hogs will be raised in the same farm or within the proximity of farms where most of their feed is grown under an organic or natural farming system and where manure is recycled efficiently and ecologically.

• Livestock management is based primarily on reducing and avoiding stress as opposed

to treating or compensating for the symptoms of stress. Hogs will be raised following the natural farming system, which offers the following advantages: • Absence of irritating odor (neighbour-friendly) • Hogs are generally peaceful & quiet • Less laborious - cleaning of pigpen not required. • The system provides the animal the natural food, nutrients and minerals that they

need from the soil • The pigs are allowed to follow their instinct of rooting and digging. • Bedding is harvested as fertilizer • Produces lean and tastier meat

A. KEY PARTNERS

Key Partners ROLES

Elarz Pambansang Lechon Downloading of natural hog farming protocols Technical assistance to facilitate compliance to standards and preparation of natural feed concoctions Supplier of piglets at buy-back scheme

Feeds Pro Corporation Supplier of natural feeds for own use of enterprise and for reselling to pig suppliers of Batang Malaya Hog Enterprise Technical assistance – feed management

Fruits and Vegetables/Forage Growers association

Supplier of raw materials Buyers of natural inputs produced by enterprise

Individual hog raisers Suppliers to the enterprise to augment hog supply for Elarz Pambansang Lechon Buyers of natural inputs, feed concoctions, and feeds

Local government unit/Barangay/ Livelihood team

Allow free use of land for two years; land rental to commence 3rd year Backstopping support during start-up operations

ILO-IPEC Donor/

Latinasia Marketing Technical assistance

Outreach per cell/batch per pilot area

Members of Batang Malaya Enterprise

100 families

Individual hog raisers 50 families


Fruits and vegetables/ forage growers

78 families

Workers 20 individuals

B. KEY ACTIVITIES/COMPONENTS The enterprise will consist of the following interlinked components that also comprise the key revenue streams for members and the association:

1. Feed and Natural Feed Concoctions and Remedies Production and Marketing The following are the main activities under this component: a) Bulk procurement and retail marketing of natural feeds as a means of reducing financial

and energy costs

The enterprise will buy natural feeds from ProNatural Feed Corporation. Depending on volume and terms of payment (COD, 15 to 30 days term), discounts will range from 10% to 20%. The feeds will be for its own operation and for retail reselling to other individual growers within the area. Sale of feeds to other growers can be either upfront cash payment (5% discount) or under a buy back scheme provided that they follow the prescribed production protocols.

b) Planting and procurement of fruits, vegetables, and forage plants for feeds (local

sourcing to reduce energy costs; judicious utilization of produce – avoid throwing away overripe/unsold fruits and vegetables)

Natural feed rations will be made up of rice bran and different varieties of nutritious and fast growing plants such as kamote, kangkong, alugbati, turmeric, malunggay, banana/banana stems/blossoms, garlic, ipil-ipil, rensonni, madre de agua, flamenga, etc. The enterprise will source the materials from own farms cultivated by members and local suppliers.

c) Households with no access to land and those who chose to participate in the communal

farm will be formed into groups or cells. Each group will consist of 5 households and will be assigned to a plot and specific crops to be planted. Size of plot will depend on actual land that will be available for the communal farm, the number of participating households, and land requirements of the crops.

Each group will be paid for the cost of the produce delivered to the feed production unit. Ceiling prices will be agreed at the start of planting season.

d) Feed Formulation and Production (decrease ammonia, energy, waste, etc.)


The hog enterprise will prepare natural feeds for own use and for selling to local growers. Focus will be on fermented feeds to improve digestibility and feed conversion ratio

e) Feed Marketing

Target clients will be the local growers in the area with priority to IPEC households. 2. Hog Fattening Operations (Natural Farming Protocol – reduced waste, smell, energy

consumption, judicious utilization of waste materials)

During the first two years of operations, the enterprise will focus on hog fattening for the lechon market. The enterprise will purchase 30 to 45 days old piglets and grow these to lechon size (30 to 40 kilos) within a period of 90 to 120 days.

3. Hog Marketing

Hogs including those under the buy-back scheme will be sold to Elarz Pambansang Lechon. Alternative buyers will be EcoPig and local traders. Under the buy-back scheme, the enterprise will buy the hogs at 5 pesos less than the buying price of Elarz Pambansang Lechon.

C. VALUE PROPOSITION Organic: Chemical free. No growth hormones. No synthetic additives. Locally grown. Premium Meat Quality: Tender. Lean. Less fat and cholesterol. Tasty --- naturally marinated even during the growing stage. Elimination of Child Labor: By purchasing our products, you are contributing to eliminating child labour in Aroroy.

D. CHANNELS a) Emphasize the benefits of eating healthier, tender and testier pork meat. b) Emphasize that is proudly produced by low-income households in target IPEC areas. c) Focus on institutional buyers that can sustain growth and bigger benefits to the

beneficiaries a) Awareness among other growers: Promotion among other growers the advantages of

converting to organic way of growing pigs to increase production and attract


institutional buyers to set-up a breeding farm. This will also help sustain feed production and marketing component.

E. CUSTOMERS 80% of hog heads will be sold mainly to Elarz Pambansang Lechon. The remaining 20% will be sold locally and other buyers to stabilize the system and the financial viability.