Findings on Inclusive Business for the Valorizacin de la Oferta Rural Project

Executive Summary

Delivered by Camila Inarra and Anna Kottkamp

May 2014

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Fundacin Nuevo Norte
Since its inception, the fundamental theory of change for Fundacin Nuevo Norte has been to
create opportunities through the development of concrete projects which allow Bolivia, and more
specifically the department of La Paz, to reach its full production potential. To contribute to the
economic and social development of La Paz, Fundacin Nuevo Norte prioritizes six strategic
areas: handicrafts, organic sugar, wood, tourism, milk, and social housing. One specific project
they hope to improve, with the help of student consultants from the University of Notre Dame, is
the Valorizacin de la Oferta Rural project. Student consultants have helped find the best
strategies and new practices dealing with inclusive business to find which ones can be applied to
the work of FNN in Batallas. In the first phase, students will examine four case studies to define
specific business models that FNN can implement. In the second phase, students will apply the
lessons learned to the context of Fundacin Nuevo Norte. They will try to evaluate FNNs
practices compared to that of other organizations and to find opportunities where FNN can
improve.

Recommendations
We distilled 4 main lessons, one from each case study, which we believe have significant
applications for FNN and the VOR project.

Lesson 1: Bringing inclusive business to scale with smart packaging
The first lesson is to package products in such a way that encourages buyers (restaurants,
supermarkets) to buy more than one product from VOR for the convenience of one-stop
shopping. This entails packaging a variety of related items together and delivering them to
restaurants in a way that is convenient and necessary for the consumers, building a loyal
consumer base for VOR.

This lesson is from the case study of Moderna Alimentos S.A, a wheat flour company in
Ecuador. For their buyers they develop all-ingredient packages which come with all the
ingredients necessary to bake croissant-like bread. This provides a convenient ordering and
delivery using a method that bakers ultimately prefer, despite the slightly higher price point
compared to buying each product individually at different markets.

Because FNN has expressed difficulties in marketing its products to supermarket chains,
restaurants and hotels, they could consider creating a package similar to Modernas in order to
deliver their products in a way that encourages increased purchases from VOR compared to the
same products coming from another part of the country or internationally.
The way to move forward with this project this summer would be to identify key products from
VOR that could be bundled appropriately and that would be of interest to buyers in this niche
market.

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Lesson 2: Building trust by providing information to farmers
The third lesson is to establish information kiosks at important centers in rural areas in order to
keep farmers informed about market prices, that the farmers can make decisions about whether
to sell their product to VOR or to look for higher prices elsewhere.

This measure addresses the issue of low trust among farmers for VOR by increasing information
for the supplier about the status of the market and about the opportunities they gain or lose by
working with FNN.

This lesson comes from the case study of ITC Limited, a soybean buying company and inclusive
business in India which runs information kiosks at its quality control centers in order to keep
farmers informed about market prices. This also gives farmers more options in terms of where
they can sell their products.

This lesson has important implications for FNN because by providing more information to
farmers, FNN could potentially increase the quality of the product farmers bring to sell and show
the farmers that the price of FNN is better than that of intermediaries. FNN already uses quality
control centers as well as running the centralized farm in Batallas, so there is a physical space
where farmers are aggregated and could access the information from the kiosk on a regular basis.
This could increase the trust of small farmers in FNN.

Lesson 3: Servicing smallholders with community workers
The second lesson is to train independent community workers to deliver services to a dispersed
supply chain of producers. Community members are trained to go out to their neighbors in the
field to help deliver the services they need. This model has applications to many different
contexts where services need to be distributed quickly and in a locally-sensitive way to people
over a large area. This addresses the problem of sharing new techniques and services to a highly
spread-out supply base, especially in organic practices in the context of changing growing
conditions due to climate change.

The use of community workers to independently provide services for the control of quality over
a dispersed supply chain comes from the case study of Engro Foods Limited. Engro, a dairy
producing company in Pakistan, in partnership with a transnational development organization,
created a program to train independent Lady Livestock Workers in veterinary services and how
to be agents of social change in their communities.

FNN already works with community leaders to share the best practices developed through the
contests it holds. With the issues associated with safety and quality assurance in agrifood
aggregate supply, this community worker model could be an important tool for sharing extension
services with farmers living very far from one another. VOR also has a centralized farm where
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supply is aggregated, where farmers may have poor access to extension services or difficulties in
transporting their perishable items.

A way to move forward with this lesson would be to identify if there are services that farmers
might need distributed over a large area or if this is not necessary for the context of smallholders
working with FNN. An analysis of the reasons, cost, benefits, and risk of undertaking such a
project is also necessary.

Lesson 4: Quality certification by third parties
The first lesson is to assist smallholder farmers in obtaining third-party certification for their
production methods in organic production in order to guarantee the quality of the product in
markets that may otherwise be suspicious or unwilling to pay the price for the goods produced
through VOR. This addresses the problem of building domestic interest in a Bolivian product
while improving access to new markets, both domestic and international.

This lesson comes from the example of Naturalcos. Through third-party certification, Naturalcos
is able to access a variety of international markets. Third party certification also aids in the
differentiation of the products of Naturalcos in domestic markets. Naturalcos works with
smallholder maca producers to help them become certified via Certificado de Produccin
Orgnica (Bio Latina) in three areas: Produccin Agrcola, Transformacin y Comercializacin.
The program is also registered in SENASAG.

VOR has expressed that many of the smallholder participant farmers already practice organic or
low-chemical agriculture out of necessity. A next step for FNN would be to organize a list of
appropriate third party certification schemes, both domestic and international, with their
certification requirements to determine which certification would be most appropriate in the
context of the participants of VOR.

Conclusion
The purpose of this report was to identify lessons to address specific problems presented by the
Valorizacin de la Oferta Rural project of Fundacin Nuevo Norte. These specific problems
were, on the supply side, issues of trust with farmers and in bringing a safe, high quality product
to high quality markets. On the demand side, FNN presented problems with entering niche
markets with restaurants, grocery stores, and other large scale buyers. These problems were
addressed through examining case studies of aggregate supply that were identified as relevant to
FNN. The case studies examined were of the businesses Moderna Alimentos S.A., ITC Limited,
Engro Foods Limited, and Naturalcos from Ecuador, India, Pakistan, and Bolivia, respectively. It
is the object of this report that those recommendations which FNN decides are most applicable
may be further researched and pursued in June and July of 2014 in order to help FNN improve in
its identified areas of need.

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Findings on Inclusive Business for the Valorizacin de la Oferta Rural Project

Final Report

Delivered by Camila Inarra and Anna Kottkamp

May 2014







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Outline

1. Organization Review...3
A. Fundacin Nuevo Norte...3
B. Valorizacin de la Oferta Rural...5
2. Inclusive Business Theory...8
3. Case Studies...12
A. Moderna Alimentos S.A12
B. ITC Limited...13
C. Engro Foods Limited.15
D. Naturalcos S.A...20
4. Applications and Recommendations..25
5. Conclusion.28
6. Works Cited...29









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1. Organization Review

A. Fundacin Nuevo Norte

Background
The concept of Fundacin Nuevo Norte began in 2005 when a group of Bolivian businessmen
who work in La Paz wanted to create a space to think about the challenges faced in the
department of La Paz and the opportunities to increase productivity. The named the space
Crculo Empresarial, or Business Circle whose members later founded Fundacin Nuevo
Norte (FNN). FNN was created on June 27, 2005. In 2006, FNNs overarching project that
focused on its six action items (handicrafts, organic sugar, wood, tourism, milk, and social
housing) called Gestor de Proyectos de Desarrollo Metropolitano y Regional del Departamento
de La Paz was created. An Institutional Strategic Plan for 2008-2012 was also created with an
experimental focus so that the organizations projects could be used to innovate new strategies to
favor the areas being helped.

Problem & Opportunity
In 2010, FNN had an independent consultant evaluate the organizations Institutional Strategic
Plan for 2008-2012. This evaluation concluded that FNN was being successful in generating
opportunities for the development of productivity and that due to its unique focus, it had a
positive effect on the areas being helped. However, the evaluation recommended the need to
specialize and focus interventions by taking advantage of the organizations comparative
advantages. This would allow the organizations projects to be more sustainable and replicable.
This evaluation allowed FNN to create a new Institutional Strategic Plan for 2011-2015 which
emphasizes small and medium businesses and uses innovative ideas, product differentiation and
market segmentation to create competition and offer high quality products. The four types of
interventions in this new strategic plan are productive interventions (projects), financial
interventions (including the diversification of resources), institutional interventions (focused on
strengthening FNN itself), and transversal interventions (focused on values such as
environmental protection, culture, and equity).

Theory of Change
Since its inception, the fundamental theory of change for Fundacin Nuevo Norte has been to
create opportunities through the creation of concrete projects which allow Bolivia, but
specifically the department of La Paz, to reach its full production potential. To contribute to the
economic and social development of La Paz, Fundacin Nuevo Norte prioritizes six strategic
areas: handicrafts, organic sugar, wood, tourism, milk, and social housing.



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Projects
Fundacin Nuevo Norte has three major projects that stem from its Institutional Strategic Plan
for 2011-2015.
Valorizacin de la Oferta Premium: This project helps textile workers increase their
productivity through technical assistance, the development of new techniques for the
production process, the creation of new designs, generating a niche market, and setting up
the commercial space Walisuma. More specifically, this project allows textile workers
to plan their production by using information provided to them on consumer preferences.
The project conducts surveys on regular clients, researches the demand and competition
at the local level and allows workers to look at world fashion trends online so that their
products are up to date. Furthermore, the image, packaging, and commercial space
provided by Walisuma positions the products in a place where people are willing to
spend more on the products.
Valorizacin de la Oferta Rural: This project helps farmers in the municipality of Batallas
increase their productivity by creating added-value to their products. Through the use of
competitions, the project finds the farmers with the best agricultural practices and then
diffuses these practices through the help of technical assistants provided by FNN and
community members (called Khamanas and Ipiris) that demonstrate leadership among
their peers. The project aims to differentiate the products (which include llama, milk,
cheese, grains, and vegetables) coming from Batallas from the rest of the products at
Bolivian markets by segmenting the market in two ways: the first is creating a new high
quality line called Kumara for supermarkets and restaurants (which value healthy and
natural products) and the second is satisfying the demand of larger informal markets
(which value quantity).
Ideas Emprendedoras: This project seeks to promote entrepreneurship and provides those
with the best ideas the tools, experience, and technical assistance to improve their
business plans. The contest has happened 7 times and has seen a total of 23,000 business
ideas, 18,000 completed businesses, 4,000 entrepreneurs who received training, and
1,700 formulated business plans. The project has also been able to gather 70 institutions
to help the businessmen take their ideas forward.

Impact and Success
Valorizacin de la Oferta Premium (VOP): FNN conducted interviews with textile
workers to evaluate the impact of their project. 53% of the workers interviewed indicated
that the most successful part of the project is the change in the process of production that
has allowed them to increase the amount of textiles being produced. 49 new products
have been created by the project and 76% of the workers say that they plan their
production around the information provided by FNN. Furthermore, 38% of the workers
had never tried to find different markets with their products, but 53% find the Walisuma
project to be an important element in the creation of a new market for their higher quality
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products. 90% of the people interviewed agreed that Walisuma is the main reason for
staying the FNNs project.
Valorizacin de la Oferta Rural (VOR): The VOR project has been able to train 3,900
families, establish 582 productive installations (such as stables and milking areas), 33,000
visits for cattle health, set up 224 acres of land with efficient irrigation, among other
things. The success in production increase has also been notable with milk cows
increasing production by 4 to 7 liters a day and reducing llama infant mortality rates from
43% to 5%. Also, from 2007 to 2010, the income of families involved in the project has
increased by 123%.
Ideas Emprendedoras: 21 of the contest winners were surveyed to evaluate the impact
generated by the project. 74% of the participants agreed that the most valuable part of the
project is the visibility their project gets by participating and winning the contest. 29% of
these participants say the contacts they received from the project allowed them to receive
financial support, partners, and even international cooperation from companies abroad.
76% of those interviewed said that the input received from Ideas Emprendedoras was
essential to the development of their project.

Moving Forward
Although the projects being implemented by Fundacin Nuevo Norte have had a lot of success in
the last seven years, the organization is hoping to further improve their projects and expand their
impact. One specific project they hope to improve, with the help of student consultants from the
University of Notre Dame, is the Valorizacin de la Oferta Rural project. The students
consultants will help find the best strategies and new practices dealing with inclusive business to
find which can be applied to the work of FNN in Batallas. In the first phase, students will
examine four case studies to define specific business models that FNN can implement. In the
second phase, students will apply the lessons learned to the context of Fundacin Nuevo Norte.
They will try to evaluate FNNs practices compared to that of other organizations and to find
opportunities where FNN can improve (Resumen Ejecutivo).

B. Valorizacin de la Oferta Rural

Problem & Opportunity
The Bolivian National Institute of Statistics reports that a third of the Bolivian population live in
rural areas (approximately 3.5 million people) and 64% of these people live in extreme poverty,
living on less than a dollar a day. Most families that live in rural areas engage in agriculture and
fishing. Farmers face many barriers daily including the inability to access certain markets, the
incapacity to scale up and have competitive prices, and not being able to compete with products
that come into the country through contraband. Farmers are in need of a business model that will
increase their productivity and allow them to compete with products coming in from other
neighboring countries. Fundacin Nuevo Norte believes that the best way to do this is by finding
niche markets where their products will be valued and met with an increased willingness to pay.
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Theory of Change
Through the Valorizacin de la Oferta Rural project, Fundacin Nuevo Norte hopes to use
product differentiation to provide rural products to niche markets where consumers are offered
high quality produce and are willing to pay for the differentiated characteristics of the products.

The projects purpose is to have 400 families in the Northern Altiplano region of La Paz to work
with and develop products directed towards niche markets. There are five main components that
Fundacin Nuevo Norte has defined in order to complete this project. The first is to identify and
evaluate families in the municipality of Batallas and those around Batallas to build social capital
and find the best producers in the area. The second component is to create the Kumara brand for
the diversification of products coming from Batallas. The third is to generate and promote new
consumers to transform the demand for the products coming from Batallas. The fourth
component is to transfer knowledge of skills to all producers involved in the project. Finally, the
fifth component is to identify markets where all products coming from Batallas can be sold in.

Project Specifics
Fundacin Nuevo Norte has worked in the municipality Batallas for four years and has helped 39
communities with 3,500 families improve their productivity and levels of income. The VOR
project has two main goals - to increase the variety of the products coming from Batallas and to
create differentiated markets for these products. FNN works with milk farmers, cheese
producers, horticulturists, cattle farmers, fishers, and foragers. FNN invests $135 to $850 per
family, depending on the work they do and on their needs.

The method used by FNN in Batallas is called Pachamaman Urupa which involves entire
communities to find, defuse, and further improve the best agricultural practices. FNN hosts
contests to see which farmers have the best products and then provide the rest of the community
with their methods with the help of technical assistants from the city of La Paz and community
leaders called Khamanas and Irpiris. The contests also provides the winners with prizes in the
form of cattle, seeds, and tools to create incentives and further increase the productive capacity
of the farmers.

Currently, 200 family units work through the Granja de la UAC de Batallas - a centralized co-
op like farm dedicated to the differentiation and diversification of products with two product
lines. The first is Kumara (which means health in Aymara, the local language) brand is offered
through this farm. Kumara has 17 products including trout, llama meat, milk, cheeses and
vegetables. The line is offered to markets and supermarkets, specialized health stores, hotels,
restaurants, and special client and individuals. The second line is more informal and satisfies the
demand of large markets.

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The Granja UAC - Batallas has many benefits for the farmers including the option to bring their
products to scale and diversify the products they offer. Because the Granja has direct contact to
markets, it is able to get relevant information about prices, preferences, and competition.
Furthermore, since the Granja acts like the intermediary for the farmers, it creates a good
alternative for the producers. What is most exceptional is the fact that the rural producers are
able to enter formal markets through the Granja, which is very rare in Bolivia. Also, farmers are
able to mitigate the risk of establishing relationships with intermediaries in informal markets
through working with the many clients that the Granja has.

Values
Fundacin Nuevo Norte has identified that aside from the skills and knowledge needed for rural
agriculture, the project needs the components of respect towards the environment, respect
towards the local culture, and fair wages. The organization has found the traditional and ancestral
processes of production can increase the quality of products and is committed to respect these
practices. Furthermore, the organization is determined to give the farmers the highest value for
their products so that they dont lose money through their practices.

Impact and Success
The project has been very successful in bringing families from the community of Batallas to
participate in the program. Thus far, more than 3,500 family units have participated in technical
assistance events. The program has established 2,200 acres of forage, 582 production
installations (such as stables and barns), 33,000 visits for cattle health, and 244 acres of land with
efficient irrigation.

The impact of the interventions can be seen in the increase in production of dairy cattle from 4 to
7 liters per day per cow. The number of herds in the community has increased by 44% and the
mortality of llamas has gone down from 43% to 5%. In terms of income, families participated in
the program have earned up to 123% from 2007-2010.

The success of the Granja UAC-Batallas can be seen through the total income due to sales in
recent years, which reached up to $230,000 from 2011- 2012. This shows a 72% increase from
2009-2010. (Proyecto Valorizacin de la Oferta Rural).
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2. Inclusive Business Theory

Inclusive Business: Summary and Background
Inclusive business is a relationship between businesses and low-income people to incorporate
these populations into the various parts of the value chains of larger companies. This increase in
market participation by people in situations of poverty can take many different forms, from
developing products with low-income people as the target consumers to working with small
scale producers as partners and suppliers. This report will focus on the context of agrifood
business and the incorporation of small scale producers into the supply chain (smallholder
procurement). The associated companies are often grocery retailers, wholesalers, food
manufacturers, and foodservice companies (Regoverning Markets, 2008). Partnerships with these
businesses, often facilitated to an extent by NGOs, give smallholder producers access to modern
markets as they meet increases in agricultural demand and share in the growth of the food sector
.

Inclusive business came to the forefront of international development at the World Summit on
Sustainable Development in 2002. The World Business Council for Sustainable Development
and several UN agencies have been promoted inclusive business as a development tool distinct
from the Corporate Social Responsibility framework. Agrifood inclusive business is one part of
an increasing effort to access the bottom of the pyramid power of the poor majority.

The purpose of inclusive business is to encourage agricultures role in economic growth and
poverty reduction. While incorporation of smallholders into supply chains has disproportionately
been considered from the point of view of export markets and politics, it is critical to think about
the importance of domestic markets for small-scale farmers and private stakeholders
(Regoverning Markets 2008). Possible outcomes and impacts of inclusive business include
investment in human capital and infrastructure, job creation, provision of goods and services,
resource mobilization, capacity for innovation and research with existing knowledge, and
influencing the business sector and public policy to address externalities and standards for
responsible behavior (Lucchi 2012).

Problem Context in Developing Areas
Global concern about insufficient domestic agricultural productivity is on the rise in the face of
economic growth and environmental changes. In terms of the political-economic scene,
increased market liberalization and foreign direct investment have allowed large agribusiness to
begin to take hold in developing countries to modernize food processing, while growing
apprehension regarding reliance on trade and imports for domestic food security has led to an
emphasis on domestic supply chains. While there is a trend of fast growth in emerging markets,
these benefits do not always reach the most rural people, evidenced by the trend of urbanization
and the increasing urban-rural income gap (World Development Report 2008). Instead of being
incorporated into the growth of agrifood systems, small scale farmers are often systematically
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excluded. Many developing countries have a high percentage of workforce engaged in
agriculture, so schemes that involve rural producers are likely to have a large effect on the
wellbeing of the country.

At the farm level, smallholders are excluded from modern markets in terms of production and
access. Low technology, low management education, poor planting and handling practices, low
quality stock material, lack of access to obtain certification for domestic and international
market standards, high barriers to borrowing, low economies of scale, high transaction costs,
limited negotiation power, and competition with high-quality low-cost imports present
significant problems for small and medium sized producers.

For the companies
It is critical that private agribusinesses understand that inclusive business is a mutually beneficial
partnership between smallholders and larger companies. An understanding that any one party is
doing a favor for the other party is not conducive to a sustainable business model. This is how
the approach and vision of pro-poor inclusive business differs from standard models of
philanthropy and aid or even corporate social responsibility; poor people are treated fairly and as
partners, not as beneficiaries. In fact, sourcing with small scale producers can be competitively
advantageous in terms of quality, innovation, costs, and farm management of certain products,
especially if there is a lack of a medium-large scale supply base (for example, see the Engro case
study). Working with smallholders can also provide valuable information adaptation to local
conditions, as well as potentially garner the support of international organizations and aid
agencies.

The often identified role of private business as well as producer organizations is to cut out the
middleman. However, a main factor of success in agribusiness participation in inclusive
business is the development of innovative business models to facilitate partnerships between
agribusiness and small-scale producers. Private companies must have strategies in place to
overcome the high costs of servicing and sourcing from small-scale farmers in the fragmented
supply base. Additionally, inclusive business often requires partnership between business and
NGOs to facilitate development and trust with small scale producers, which can be difficult to
achieve in reality due to different scales, values, and decision-making processes between the two
types of organizations. In addition, working with a highly dispersed supply chain can lead to
high transportation costs due to low infrastructure. Finally, standardization of food safety and
quality can be a major concern for incorporating smallholders, necessitating innovation and
development around extension services to support high quality smallholder products.

For the farmers
The main benefit to farmers from inclusive business practices is a more sustainable and reliable
source of income that can adapt to market growth. Companies buying from smallholder suppliers
also must help build farmer capacity to produce a consistently high quality product, through
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extension agents, field schools, or demonstration plots, along with technical support. Another
determinant of success is facilitating farmer access to often access to financing, as agriculture is
inherently risky. Inclusive business differs from corporate social responsibility in that the
wellbeing of the business is highly linked with the wellbeing of the producers, which encourages
technological development and support for the producers. Inclusive businesses have incentives
for advocacy on the behalf of their suppliers, which can improve the political power of
smallholders. Despite the many benefits claimed to come from inclusive business due to the
improved sources of income, evidence of the benefits to farmers is rarely quantified and reported
through monitoring and evaluation.

A significant aspect identified in inclusive business theory is in strengthening producer
organizations. Organizations of producers can enacting countervailing market power in a way
that individual farmers simply lack the negotiating power to do. However, efficient marketing
producer organizations are rare without the help of NGOs or other support agencies. Inclusive
business models can foster successful producer organizations through a balance of cooperation
and competition between group members. Key aspects identified for producer organizations
include specialization and working as a cooperatives to reduce input costs for smallholders.

Smallholder exclusion from modern markets hinders development, due to high requirements for
quantity, quality, consistency, and record-keeping, especially if the sizes of land holdings are
widely disparate in a particular area. Inclusive business provides a bridge for smallholder access
to these markets. In the absence of inclusive business, smallholders may be forced to sell to
exploitative intermediaries in existing supply chains. Contract farming has also been presented as
a solution to small-scale farmer incorporation, but this method does not necessarily emphasize
economic benefits from rising market prices and risk management to farmers in the way that the
inclusive business model does. In addition, contract farming often still involves market
intermediaries. Contract farming may lack proper transparency and balance of power in contract
negotiation.

Government Roles
Governments often play a role in correcting market failures and fostering development. In the
plight of smallholder farmers, can help provide opportunities, promote a level playing field
between domestic and imported markets, and promote the wellbeing of smallholder farmers by
addressing the problems they face. These include risks, unjust intermediaries, monopolies, lack
of market choice, high input costs, and the volatility of prices. Governments can set cooperative
laws and provide agricultural extension and infrastructure for smallholder farmers, the lack of
which can significantly raise the prices of smallholder goods. In addition, land policies can
drastically affect rural poverty disparities and market access. Government and the public sector
can also have an impact on research and the development of new technology for farmers through
universities and government extension services. Credit policies also can greatly impact
smallholder farmers and financial services available to them.
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Debates and issues
Critics of the model highlight a variety of issues surrounding inclusive business that should be
addressed moving forward. Primarily, the producer participants in inclusive business are
generally not the poorest of the poor, and therefore perceive no meaningful distinction between
business and inclusive business. Clearly, there are limitations to the social power of inclusive
business. It cannot entirely substitute the role of NGOs and public programs to support the very
poorest or in times of emergency. However, it can be a very important development tool in other
long-term ways.

In terms of considering producer-business relationships as a partnership, there are concerns about
imbalances of power in inclusive business relationships. Private business can be seen as
exploitative and not able to be trusted as an influential buyer from small-scale producers in
monopolistic settings. It is critical to have checks and balances in place to guard against further
exploitation of smallholders.

Intermediation by inclusive businesses as a substitute for traditional intermediaries may rely on
subsidization through donors and NGOs. While this subsidization may provide incentives for
companies to enter the inclusive business market, it is important for organizations to consider an
exit strategy that will leave the farmers able to remain organized without the business around,
which is another reason that encouraging producer organizations and cooperatives are especially
important for an inclusive business endeavor.

In agrifood business, added concerns about quality consistency and product safety are
paramount, often representing a large barrier to smallholder incorporation. This area requires
continued research and innovation to facilitate inclusive business relationships.



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3. Case Studies

A. Moderna Alimentos S.A.

Local Context
About 27.3% of the population in Ecuador lives below the poverty line and 27.8% of the labor
force works in agriculture. The countrys main products are bananas, coffee, cocoa, rice,
potatoes, tapioca, plantains and sugarcane. The country has a large amount of water and land
resources that have yet to be exploited and productivity for small farmers tends to be low (New
Agriculturalist). Wheat production in Ecuador has remained stagnant over the past years and the
import of wheat and wheat flour has been increasing due to high demand by consumers and the
animal feed sector. Per capita wheat consumption has grown from 30kg/year in 2002 to 40
kg/year in 2006 (Latin America and Caribbean Region Food Industry Assessment).

Organization and Relevance to Fundacin Nuevo Norte
Moderna Alimentos S.A. is the largest miller and marketer of wheat flour in Ecuador. The
company began in 2009 when two smaller Ecuadorian millers, Molino Electro-Moderna S.A.
and Molinos del Ecuador S.A., merged and now control 39% of the countrys wheat flour
market. The company headquarters are in Quito, but the company has mills which operate in 3
different cities throughout the country. Aside from its trademark wheat flour brand Ya, the
company also produces bakery products and has a chain of bakeries in Quito. Moderna S.A.s
model for the bakery products is what is most relevant for Fundacin Nuevo Norte. Moderna
provides an inclusive package sold directly to bakeries and the package provides all the
ingredients for the bakery products. This provides a convenient ordering and delivery method
that bakers prefer, despite the slightly higher price point compared to other wheat flours.
Fundacin Nuevo Norte could consider creating a package similar to Modernas in order to
deliver their products to both restaurants and supermarkets.

Project Specifics
Quito has over 6,000 bakeries and Moderna S.A. is able to reach out to 75% of these with its
products. The company has two different clients - individual bakers, who bake bread at home
and sell their products as they walk along markets and streets, and small bakeries, which are
usually family owned. Moderna S.A. provides bakeries with a package including flour, yeast,
sugar, flavorings, and other ingredients to create their baked goods. They also have training
sessions to teach bakers how to most effectively bake the products. These sessions take place in
four different sites that Moderna has created as well as at the bakeries themselves. With the help
of 10 assistants, the company is able to oversee 400 of their bakery clients a month to provide
support. Moderna also has workshops available to bakers on bakery, pastry, business
management, taxes, and self-esteem (Moderna Alimentos S.A.).

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Impact and Success
The project has thrived due to consumer preference for the cachito bread that Moderna provides
ingredients for, baking accounting for 70% of the flour market, loyalty of the bakeries, and the 3-
4% annual rise in demand for flour. The cachito bread - similar to a croissant - is Ecuadors
bestselling bakery product. They have a low price point - $0.30 for 3 - which leads to the high
demand of Moderna flour. As of 2011, Moderna has supplied 4,200 bakeries with ingredients,
efficient ordering and delivery methods, necessary technical assistance, and even credit. The
Moderna model provides bakers with successful businesses and economic stability. It has trained
10,000 people and 5,000 bakeries since its inception, becoming one of the most well-known
companies in the wheat flour market (Moderna Alimentos S.A.).

Lessons Learned
Although Moderna has a large market compared to Fundacin Nuevo Norte, their inclusive
business model has many lessons that can be applied to Fundacin Nuevo Nortes model. First of
all, the inclusive package that Moderna gives to its clients is convenient, direct, and efficient.
Moderna is able to sell this package at a slightly higher price point and bakeries are willing to
buy it because of the convenience. If Fundacin Nuevo Norte finds a way to sell certain products
from Batallas - such as cheese and vegetables - directly to restaurant and supermarket doorsteps,
it could give them an advantage compared to the same products that come from other countries
and are sold at the markets. Secondly, the workshops that Moderna provides for its clients are
something that can be used for the farmers that Fundacin Nuevo Norte works with. Providing
the farmers with training on certain agricultural and business practices and self-esteem can help
farmers improve their products and build trust between each other and with Fundacin Nuevo
Norte.

B. ITC Limited

Local Context
Agriculture contributes to Indias GDP by 21% and 72% of the countrys population lives in
rural areas. Agricultural growth in the 1990s reduced rural poverty to 26.3 percent, but there has
been a slowdown in agriculture since the turn of the century. India has one-third of the rice yields
of China and half of that in Vietnam and Indonesia. The same is true for most other agricultural
commodities other than sugarcane, potato and tea. Some factors affecting the slowdown in
agriculture are the poor government spending on agricultural subsidies that crowd out
agricultural research, over-regulation of domestic agricultural trade, and government
interventions in labor, land, and credit markets (India: Priorities for Agriculture and Rural
Development). One example of poor government interventions is the large wholesale agricultural
markets called mandis. Farmers sell their produce to traders at the mandis and the traders then
sell the products to processing companies. The produce is sold through an open bid auction
where the auction begins once a government employee determines the quality of the produce and
sets the initial bid. Although mandis were initially established to protect farmers, the ability of
18

traders to collude leaves little profit for farmers who cant sell their products elsewhere. The
traders lack good transportation methods and storage facilities, but their knowledge of prices in
different markets allow them to take most of the profits (Goyal).

Organization and Relevance to Fundacin Nuevo Norte
ITC Limited is a company with headquarters in Kolkata, India. ITC is a big buyer of soybeans
and decided to eliminate intermediaries in the state of Madhya Pradesh through the e-Choupal
project. This project has two dimensions. One is to establish kiosks throughout rural areas so
farmers can check the daily price of soybeans and decide whether to sell their product to ITC
Limited or mandis. This doesnt only provide farmers with information about the market, but
gives them more options in terms of where they can sell their products. The second dimension of
the project is the creation of centers to control the quality of the soybeans. The control centers
help deviate the selling of soybeans in large mandis and increase the price of the product. The e-
Choupal project is a good example for Fundacin Nuevo Norte because it provides farmers with
efficient markets. It creates direct interactions between producers and processors, eliminating
intermediaries that devalue the farmers earnings (Goyal).

Project Specifics
ITC Limited established the e-Choupal program in October 2000. Before this project, ITC
purchased soybeans from traders who bid on produce at mandis. However, after interviewing
many officials, ITC realized it had been paying higher prices for lower quality products and that
farmers were earning less overall. By bypassing intermediaries with e-Choupal, ITC could
increase the quality of the product and lower transportation costs. ITC established 1,700 internet
kiosks and 45 control centers over a period of 4 years. The kiosks are managed and operated by
farmers themselves who are trained by ITC. The kiosks provide the soy prices of 60 mandis and
ITCs prices at the 45 control centers. Farming techniques and weather updates are also
available. If the farmer decides to sell directly to ITC, the farmer will receive at least the
minimum support price, which is set by the government every year, and the farmer receives pay
instantly (Goyal).

Impact and Success
By the end of 2004, districts with ITC kiosks sold 4.08 percent more of their soy production
directly to ITC. This shows that it is a profitable project for both ITC and the small farmers using
the service. The presence of the control centers has offered two benefits to small farmers. First,
they divert part of the sales away from mandis, increasing the price of the produce. Secondly, the
quality control testing performed at the center induces farmers to self-select and take their best
produce to ITC. This means mandis get the lesser quality product, which reduces the price at the
mandis. Research has shown that the presence of a kiosk increases the price of soybeans by 1-
3%. Also, the dispersion in soybean prices across the mandis affected by e-Choupal decreased
after the project was implemented. The project also demonstrated improvement in the
procurement of soybeans as a result of direct contact between the buyer (ITC) and the seller and
19

the reduction in transaction costs. The project also had benefits for ITC, which saved 12.9
million rupees in the first year of the e-Choupal intervention (Goyal).

Lessons Learned
ITCs e-Choupal intervention demonstrates the importance of information for farmers and the
significance of increased interaction between buyers and sellers. For Fundacin Nuevo Norte,
this means that providing more information to farmers could potentially increase the quality of
their product and show them that the price of Fundacin Nuevo Norte is better than that of
intermediaries. This could increase the trust of small farmers in Fundacin Nuevo Norte.
Fundacin Nuevo Norte could implement the use of kiosks at its central farm in Batallas if it
doesnt want to have multiple kiosks throughout rural areas. The quality control centers is
something that Fundacin Nuevo Norte has already been using and should continue doing so
because of the benefits in increased price for farmers.

C. Engro Foods Limited

Local Context
Pakistan is a country with over 45% of the national workforce engaged in agriculture, ranking
high as a world producer despite low investments (Engro Corporation Limited, 2012). Of this,
the livestock sector contributes nearly 50% to the value addition in the agricultural sector, with
dairy production nearly a third of that value (Ahmad and Moriani, 2011). Milk production
represents almost 12% of the countrys GDP, yet only 7% of milk production is used for
commercial processing. This sector is dominated by rural smallholders, the number of which
have grown with little organization, scientific development, or business support (Qureshi, 2012).
Current practices emphasize traditional dairy farming techniques, which have a low cost of
production for families and are therefore appropriate for the size of their economies of scale.
However, the lack of organization in the sector translates to poor management practices and
record keeping, where the lack of technology creates significant milk waste. Due to its large role
in the agricultural production system, dairy farming is an important aspect to consider in the
reduction of poverty. There is great potential for economic growth in this sector, both for the
average dairy-producing family and for dairy processing companies, making it a worthwhile
avenue to pursue in development efforts.
Problem
Despite the significant contribution of the livestock to the livelihoods of many Pakistani people,
the average herd size per family varies from just one to three animals, and milk production is
spread across small farms that can be thousands of kilometers apart. Livestock farming is often at
a subsistence level, with rural women in charge of the majority of the work associated with the
familys livestock. Furthermore, there is a lack of support for farmers, stemming from sheer
distance from government extension services. For example, four out of five people in the
20

agricultural community of Sindh live beyond 5-10 kilometers from the treatment and nutrition
measures of extension services (UNDP 2009).
There is interest in the growth of the dairy sector in Pakistan by several multinational dairy
companies as well as an increase in domestic demand for dairy. However, there are significant
challenges faced to bringing a quality product to the market if dairy production for these families
was to increase from a level of just subsistence. First of all, growth means significant
environmental pressures, including increased need for feedstock which, with the increased
droughts and increased land needs means less arable land can be allotted for crops for human
consumption. In terms of the livestock, poor genetic quality, lack of access to most effective
techniques, and disease are seen as the salient challenges. In terms of the product, infrastructure
for transportation, veterinary services, and better feed is required. In terms of the farmers
themselves, poor farm management, farmer education, middlemen exploitation, unjust pricing,
and payment delays are further barriers to market access for the poorest areas of rural Pakistan
(Khuram, 2012).
Organization and Relevance to FNN
Engro Foods Limited is an offshoot of Engro Corporation Limited, a large and successful
holding company and one of Pakistans largest conglomerates. Engro Foods Limited works in
manufacturing, processing, and marketing of various food products, such as dairy products, ice
cream, and juice. This company relies on buying from a supply chain of over 125,000 farmer
suppliers in Pakistan through over 1,000 aggregate collection centers and a field force of female
extension agents to improve the quality of their product and the quality of life of the suppliers.
Engro Foods Limited is committed to their Corporate Social Responsibility as well as a business
interest in the successes of their farmers. Engro is committed to addressing many of the same
challenges that smallholder farmers in Pakistan face as those that FNN is working on in Bolivia,
including transportation difficulties, taking the model to scale, and exploitation by middlemen.
Engro also operates the Engro Dairy farm, similar to the Granja in Batallas of FNN, where
farmers can find the support and supplies they need to carry out their work.
Engro Foods Limited has established top quality brand names in the dairy market in Pakistan, as
one of the largest competitors in the dairy industry. Engro Foods Limited product differentiation
involves its commitment to Corporate Social Responsibility. Their brand called Olpers Milk, for
example, has a tagline focused on women empowerment. Consumers in Pakistan are responsive
to the slogans and taglines of Engro Foods Limited Products. This is an area that FNN is
exploring in their advertisement of a Bolivian-made brand for their domestic consumers through
their product line Walisuma and Kumara.
Engro Corporation Limited also is associated with Engro Foundation, a non-profit entity created
solely for target intervention areas of education, health, livelihood, physical infrastructure, and
emergency relief in Pakistan. Thus, both business and social investment are represented in the
21

Engro name.
Project Specifics
Engro has several projects it is currently employing to grow its business and to act on its
commitment to corporate social responsibility: highlighted here are the Nara Dairy Farm and
the Lady Livestock Workers program.
Engro Limited established the Engro Dairy Farm in Nara Taluka Salehpat in the District of
Sukkur. At this centralized farm, smallholder dairy farmers can find a wide variety of supplies
they need for dairy farming, including milk processing machinery, disinfectants, feed, and the
animals themselves. The Nara farm also is a collection center for the raw milk of rural dairy
farmers to be processed. There are approximately 30 farm employees, including a farm manager
who directs the administrators, engineers, livestock managers, and cropping managers. The farm
operates by strict animal quality of life standards as well as with rigorous safety measures for the
employees at Engro Dairy Farm. The farm provides other dairy farmers with solutions to the
dangers due to lack of hygiene and poor sanitation and milk storage in traditional dairy farming.
The farm is also active in research and development of technology for safety and quality in dairy
farming, with a small stock of cows on site to test and share husbandry techniques.
Partnered with the UNDP in the Community Empowerment through Livestock Development and
Credit Project (CELDAC) to begin a Lady Livestock Workers (LLW) initiative to increase
human capital, income, and employment of women in the livestock sector by education and
access to credit and saving facilities. Women already are important agents of livestock
management in an informal way in rural households, the role of the training and support was
largely to create value for the contribution of women in livestock. A veterinary curriculum to
train LLWs was developed in consultation the University of Veterinary and Animal Sciences in
Pakistan, with government support from the President of Pakistan and the Governor & Chief
Minister. LLWs were also involved in workshops and trainings about how to enact
socioeconomic change in their communities as well as about entrepreneurial behavior. Much like
Community Health Workers in human health, the LLWs model is an important way to delivery
health services to animals in scattered, low-infrastructure areas with poor access to veterinary
care through relatively low-cost service providers with intimate local knowledge. A secondary
goal of this project was to enhance the linkages of farmers to the market of the dairy companies
by allowing dairy farmers a way to sell to dairy companies without a middleman, increasing the
assurance of quality in the product and increasing the profit margin of the beneficiary
households, through the development of small collection centers scattered across the rural
landscape which are safely accessible to the farmers Engro works with.
Theory of Change
The leadership of Engro Foods Limited has expressed and shown a commitment to integrate the
22

community itself in the development process through their collaboration with smallholder
farmers. Their theory is that by providing a steady stream of income at fair prices and helping
build the human capital and infrastructure necessary to help small farmers technically, they will
increase the quality of the products their suppliers give them as well as promote the overall
economic development in the region. This may, in turn, increase the purchasing power of rural
people, who may then become more prominent consumers.
The LLW project was built on a Public Private Partnership (PPP) model, which signifies a
partnership between the project, private corporations, associations, and a public university to
bring key stakeholders together and to use market driven solutions in the private sector by
integrating the local community in the supply chain system. The theory behind this project is that
local women have both the local knowledge and the potential to be agents of change in their
communities, and by training these women technically in livestock management and disease
prevention as well as about being agents of socioeconomic change, lasting improvements can be
made in the lives of the farmers.
Values
Engro Corporation Limited has identified several core values: ethics and integrity; health, safety
and environment; innovation and risk taking; people; and community and society. Their model of
sustainable business development is based on the commitment to engage with key community
stakeholders, believing that successful business has more impact in a community that mere aid.
They also conduct extensive internal audits of every department to ensure maximum
transparency and ethical practices
In terms of the LLW project, many aspects of the process were intentionally done to engage and
unite key stakeholders. For example group workshops in advance of the training united project
with stakeholders and staff (for example, the CELDAC team and the Engro Foods Limited team)
in their brainstorming and understanding of the project fundamentals (objectives, work plan,
supporting documents, LLW qualifications). Monitoring and Evaluation was emphasized
throughout the project, beginning with baseline surveys to understand the local context using
indicators formulated in the opening workshops. Emphasis on stakeholder participation and
social mobilization was manifest in several different levels of meetings and orientation
workshops and the transparency and recruitment process of the LLW role (including head of
family consent).
Engro Corporation Limited holds itself to high environmental sustainability standards as well. It
monitors its carbon footprint, greenhouse gas emissions, and pollution emissions and takes
measures to reduce its output into the atmosphere. It also emphasizes the maximization of natural
resource utilization, third party certification for sustainability, and the creation of
environmentally friendly products which reduce waste and use recycled materials. It is not
known if these practices are enforced for their smallholder producers, however.
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Lessons
Engros model has been highly successful in terms of business, as their milk procurement has
tripled from 2006-2011, through their active involvement in supporting both the farmers access
to markets and the farmers technological and product quality advancements (Engro, 2011).
Their work shows that a product as perishable as raw milk can still be collected from
smallholders and processed in aggregate on a very large scale. Managers at Engro Foods Limited
claim that their model of inclusive business encourages a high quality product and reduces the
risk of mass animal disease through diversification. The success of their brand also shows a
public interest in supporting business endeavors with a CSR focus. In the LLW project, working
to supplement government efforts in infrastructure and market development was identified as
strength of the program. Through the integration of concerned authorities, government support
was garnered for the program, increasing its scope and legitimacy. Furthermore, integration with
local NGOs improved the support of the LLW. The comprehensive nature of the program was
also identified as a key aspect of the LLW model, by supporting and encouraging farmers in the
formation of groups to facilitate transfer of technology as well as relationships with the market
and management techniques.
Impact and Successes
The LLW project, in conjunction with the UNDP, has been rigorously evaluated for its impact on
the earnings and social status of women involved in the program. In the project with LLWs, 65
percent of the women who were trained and certified as LLWs went on to become independently
employed in animal health care treatment, with the remaining 35 percent working as Village
Milk Collection agents. Whereas most women in their same position would not be earning a
significant, steady income, the self-employed LLWs earn 2000-2500 Rs per month in their new
position, and Village Milk Collection Agents earn a steady 1500-2000 Rs per month through
their rounds.
However, the measurement of impact in the incorporation of smallholder farms into the business
supply chain has not been made clear through publically-available research. Monitoring and
evaluation of the smallholder farmers livelihoods and wellbeing is critical, as this method is a
large component of the companys CSR model. It is possible that Engro Foods Limited, being
primarily a business, does not go as far in its evaluation of impact as an NGO might because it
does not rely on donors for funding. As long as the quality and quantity of the milk is high,
Engro Foods Limited benefits from the partnership with smallholder farmers.
Challenges
In the LLW project, the access to credit was a significant challenge, given the reluctance of
banks to work with rural peoples due to high transaction costs. Community based credit
providing agencies were presented as a potential solution. Furthermore, while the LLW model
focuses on the development of the capabilities of women in livestock management, public sector
24

institutions do not currently support the development of management and entrepreneurial skills
in rural women. This represents a significant mismatch between the private sector vision and the
political environment, which will need to be addressed to make a way forward for rural women.
Moving Forward
In the LLW project, several strategies to strengthen the relationships of LLWs in the
communities were identified, including the formation of community groups to strengthen social
supports between rural women involved in livestock. Additionally, increased linkages with milk
processors to improve the possibility of commercial milk market would be a good avenue to
pursue, as well as linkages with other community based NGOs and government institutions
working in the same sector for was identified as a method to increase the recognition and
acceptance of the project.
There are assumptions under the inclusive business model that merit further study. The most
glaring assumption is that the smallholder farmers are benefiting from the partnership. However,
it may be possible that Engro Foods Limited has, in effect, created a sort of monopoly in terms of
where a dairy farmer can sell his product. Faced, again, without a choice of where to sell his
product, power over the farmer may have merely shifted from the previous middleman to Engro
Foods Limited.
Additionally, the environmental sustainability of the practices of the smallholder farmers will
need to be supported through training and technology from Engro Foods Limited to ensure that
dairy farmers can earn returns on their investments in this sector with an environment that can
support the production of dairy products.
D. Naturalcos S.A.
Local Context and problem
Though Bolivian lands make up a mere 0.2% of the world, Bolivia harbors between 35-45% of
the worlds biodiversity and is among the top 11 countries with the highest number of plant
species in the world (Bolivian Embassy, 2012). This diversity of plant species have been used
culturally and medicinally by rural Bolivian people for generations. Rural Bolivian people of the
highland region practice traditional medicine, using indigenous plants for their perceived
beneficial properties (Thomas et al. 2009).
At the same time, intense poverty pervades the highlands region of Bolivia, disproportionately
affecting the indigenous people. These people often depend on agricultural livelihoods, which do
not always provide a steady source of income that farmers and their families can use for food,
education, housing, health, and emergency payments necessary for their wellbeing. Though there
is rich potential for natural resource exploitation, the ecosystems of Bolivia are fragile in the
context of climate change and sensitive to overexploitation (McDowell and Hess, 2010).
25

Meanwhile, a growing global demand for natural health products and organic foods has led to an
international market for goods of this type and quality, provided there is enough consumer buy-
in to the quality of the product. With around 40% of Bolivias labor force working in agriculture,
inclusive business in this agricultural has the potential to impact a significant proportion of the
country. This context presents a practical opportunity for sound organic practices to meet market
demand to sustain indigenous and rural livelihoods in Bolivia.
Organization and Relevance to FNN
Naturalcos S.A. began as an alliance between Laboratorios Alcos (a pharmaceutical company),
PRODEM (a microfinance institution), and ECCO Trend Ecologics Ltd. (a natural product
distributor in Canada). It is a member of Grupo Alcos. Naturalcos has found a market niche in
the supply of organic Nutracuticos, a term they have coined for health food, or foods with
medical benefits. Naturalcos has established export markets in Canada and is working on
developing export customers in France, Germany, Argentina, Paraguay, Hong Kong, USA,
Israel, Romania, Japan and Venezuela. Like FNN and its Walisuma line, Naturalcos forms
partnerships to export its products from Bolivia. Within Bolivia, Nutracuticos products are sold
under the brand Lnea Spirit, similar to the domestic Kumara brand of FNN.
Similarly to FNN in their Valorizacin de la Oferta Rural project, Naturalcos depends on a
supply chain of smallholder families tending the production of maca on their own small plots and
land. Maca is one of the main natural pharmaceutical products offered by Naturalcos. Naturalcos
works in partnership with farmers to ensure fair prices, provide technical assistance, and help
farmers obtain organic certification as it facilitates their access to international maca markets.
Project Specifics
Naturalcos works in the export of natural products of Bolivia. Their supply chain consists of
small-scale farmers in the Bolivian highland region, with consumers in the international export
market as well as in Bolivia itself. Naturalcos is currently in the process of training highland
farmers in the production and harvest of organic maca. This project is developed in conjunction
with the Canadian Executive Service Organization (CESO). Naturalcos facilitates technical
assistance and access to the seeds of maca and other indigenous cereals. It also develops
partnerships with rural farmers by contracting to provide fair prices for their products. The
organic certification assistance allows farmers to produce a value-added, quality-assured product
that would be difficult for farmers to navigate and market, domestically or abroad, by
themselves.
Recently, Naturalcos has begun to work in partnership between the Netherlands Development
Organization (SNV) and the Business Council for Sustainable development in the launching of
Luchito, a nutritional cereal product of amaranth, quinoa, and maca that they anticipate will
improve the nutritional health of 100,000 people living in poverty as well as support the
26

livelihoods of 600 Andean farming families. Farming families producing the Luchito product
will be paid fair prices for the products they grow as part of the inclusive business model
championed by Naturalecos S. A. (Sistema Informativo Empresarial). At the time of this
writing, no further information about the impact of this project or about the alliance between
CEDES-SNV and Naturalcos on the Luchita product was available, as it is still in the beginning
stages. However, this project represents an important framing of inclusive business in that
agricultural families are the primary suppliers of raw materials and a portion of the intended
consumers of the finished product, as the processed cereal is also intended as a cost-effective
nutritional supplement for poor families. Thereby, the model was designed to incorporate
smallholders in the supply chain as well as the consumer chain.
Theory of Change
Naturalcos emphasizes corporate social responsibility (CSR) as a way to use market-based value
increases to bring about income changes in the livelihoods of people. This is achieved by
incorporating smallholder producers on their own farms into its value chains, through providing
technical support, organic certification support, and creating an international market and helping
smallholder farmers access that market. A steady source of income, in turn, translates into
education, health, and freedoms of people living in poverty to pursue the kind of life they wish
for a more well-off Bolivia.
Values
The tagline of the Lnea Spirit brand is Los productos de la Lnea Spirit te hacen bien a ti y
hacen bien a todos (The products of Lnea Spirit benefit you and benefit everyone). This reflects
the businesss emphasis on CSR towards the smallholders in the highlands that cultivate much of
the organic maca sold by Naturalcos. Their vision is to cause a social impact within Bolivia
through the increased rural family revenue from the global export of high quality Naturalcos
products. This value is revealed in examples of impacted community members highlighted by
Naturalcos in their reports and presentations always focus on the grander social impact of an
increased income, including education and care for the elderly.
Naturalcos explicitly values sustainable resource use, through the incorporation of Andean
communities in production of a high quality organic crop in a sustainable manner. They promote
sustainable agriculture through agroecology practices and organic certification for the
smallholder farmers who choose to sell their maca to Naturalcos.
Lessons
Naturalcos S.A. is a local organization works with agricultural communities and associations as
well as independent producers to develop trust with the farmers. This trust facilitation is one of
the highlighted problems that FNN is trying to address. Having the support and authority of an
27

overarching association or community group may be one critical way to build supplier buy-in to
the project and strengthening the organization of producer groups outside of the business is one
way to facilitate their power in the market to conduct commerce and ensure fair pricing.
In order to establish and retain their export market, Naturalcos produces an organic product with
internationally certifiably high quality for successful export, with fairly rigorous quality studies
done on the products of Naturalcos to reflect its chemical composition and health benefits. In a
developed world focused on quantifying the quality of a product and hesitant about buying an
unfamiliar product, the use of third party quality assurance is crucial. Helping smallholders
obtain this certification is one way for Naturalcos to help smallholder farmers to increase the
value of their product.
Naturalcos works with universities to constantly develop new products to keep ahead of the
changing field of natural supplements and therapeutic compounds. This relationship with
research centers allows them to help their farmers with new practices as well as to continue to
build their marked base.
Impact and Successes
Naturalcos works with 18 Andean communities, with over 4000 smallholders employed in the
production of Maca. Since the outset of the project in 2003, production of maca has increased
over 20 times its original tonnage, with farmers in the highlands of Bolivia spanning the
departments of La Paz, Oruro, Potos, and Cochabamba producing 140 tons of organic maca in
total.
Naturalcos highlights the traditional growth and harvesting of maca as a culturally strengthening
practice for farmers and their families. The increase in income of farmers are expected to
improve the opportunities that are available to children who would have otherwise gone without
schooling as well as elderly members of the family who would have suffered from reduced care.
Challenges
As a producer of agricultural and pharmaceutical supplies for export, one challenge is in
remaining competitive in international markets. It is difficult to create a new market niche of an
unknown product in developed country markets. Naturalcos addresses this problem through
certification and quality-testing of products (including meeting FDA standards and chemical
composition testing). It also does this by developing close partnerships with export companies,
such as those in Canada, who value the CSR of Naturalcos and are willing to pay extra for
assurance in its standards of production.
It is difficult to understand the real social impact of Naturalcos due to a lack of monitoring and
development efforts. Naturalcos states its inclusive business focus in its vision and mission
multiple times, but the actual effect of this model is not well documented. In a philanthropic and
28

grant-making world more and more dedicated to monitoring and evaluation, the low availability
of this information is a serious drawback in the presentation of the theory of change and social
enterprise model of Naturalcos.
Moving Forward
Naturalcos anticipates a growing market for organic and health-food products. They continue to
look for ways to build their supply chain as well as to understand the chemical identity and
therapeutic properties of their products. The further development of Luchito is one such example
of diversifying their product line. Because their main consumers are on an international market,
exportation is very challenging, requiring lab testing as well as clinical trials of all exported
products. They are constantly looking for new consumer partnerships, as well as partnerships
with universities to test their products. They also are looking for strategic alliances in Bolivia and
abroad to develop new products such as cereals and nutrition bars to diversify their production.
However, these partnerships will only be achieved if their impact can be demonstrated and
quantified, which at this time is not publicly available information.



29


4. Applications and Recommendations
We distilled 4 main lessons, one from each of the case studies, which we believe have significant
applications for FNN and the VOR project.

Lesson 1: Bringing inclusive business to scale with smart packaging
The fourth lesson is to package products in such a way that encourages buyers (restaurants,
supermarkets) to buy more than one product from VOR for the convenience of one-stop
shopping. This entails packaging a variety of related items together and delivering them to
restaurants in a way that is convenient and necessary for the consumers, building a loyal
consumer base for VOR.

This lesson is from the case study of Moderna Alimentos S.A, a wheat flour company in
Ecuador. For their buyers they develop all-ingredient packages which come with all the
ingredients necessary to bake croissant-like bread. This provides a convenient ordering and
delivery using a method that bakers ultimately prefer, despite the slightly higher price point
compared to buying each product individually at different markets.

Because FNN has expressed difficulties in marketing its products to supermarket chains,
restaurants and hotels, they could consider creating a package similar to Modernas in order to
deliver their products in a way that encourages increased purchases from VOR compared to the
same products coming from another part of the country or internationally.

The way to move forward with this project this summer would be to identify key products from
VOR that could be bundled appropriately and that would be of interest to buyers in this niche
market.

Lesson 2: Building trust by providing information to farmers
The third lesson is to establish information kiosks at important centers in rural areas in order to
keep farmers informed about market prices, that the farmers can make decisions about whether
to sell their product to VOR or to look for higher prices elsewhere.

This measure addresses the issue of low trust among farmers for VOR by increasing information
for the supplier about the status of the market and about the opportunities they gain or lose by
working with FNN.

This lesson comes from the case study of ITC Limited, a soybean buying company and inclusive
business in India which runs information kiosks at its quality control centers in order to keep
farmers informed about market prices. This also gives farmers more options in terms of where
they can sell their products.
30


This lesson has important implications for FNN because by providing more information to
farmers, FNN could potentially increase the quality of the product farmers bring to sell and show
the farmers that the price of FNN is better than that of intermediaries. FNN already uses quality
control centers as well as running the centralized farm in Batallas, so there is a physical space
where farmers are aggregated and could access the information from the kiosk on a regular basis.
This could increase the trust of small farmers in FNN.

Lesson 3: Servicing smallholders with community workers
The second lesson is to train independent community workers to deliver services to a dispersed
supply chain of producers. Community members are trained to go out to their neighbors in the
field to help deliver the services they need. This model has applications to many different
contexts where services need to be distributed quickly and in a locally-sensitive way to people
over a large area. This addresses the problem of sharing new techniques and services to a highly
spread-out supply base, especially in organic practices in the context of changing growing
conditions due to climate change.

The use of community workers to independently provide services for the control of quality over
a dispersed supply chain comes from the case study of Engro Foods Limited. Engro, a dairy
producing company in Pakistan, in partnership with a transnational development organization,
created a program to train independent Lady Livestock Workers in veterinary services and how
to be agents of social change in their communities.

FNN already works with community leaders to share the best practices developed through the
contests it holds. With the issues associated with safety and quality assurance in agrifood
aggregate supply, this community worker model could be an important tool for sharing extension
services with farmers living very far from one another. VOR also has a centralized farm where
supply is aggregated, where farmers may have poor access to extension services or difficulties in
transporting their perishable items.

A way to move forward with this lesson would be to identify if there are services that farmers
might need distributed over a large area or if this is not necessary for the context of smallholders
working with FNN. An analysis of the reasons, cost, benefits, and risk of undertaking such a
project is also necessary.

Lesson 4: Quality certification by third parties
The first lesson is to assist smallholder farmers in obtaining third-party certification for their
production methods in organic production in order to guarantee the quality of the product in
markets that may otherwise be suspicious or unwilling to pay the price for the goods produced
through VOR. This addresses the problem of building domestic interest in a Bolivian product
while improving access to new markets, both domestic and international.
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This lesson comes from the example of Naturalcos. Through third-party certification, Naturalcos
is able to access a variety of international markets. Third party certification also aids in the
differentiation of the products of Naturalcos in domestic markets. Naturalcos works with
smallholder maca producers to help them become certified via Certificado de Produccin
Orgnica (Bio Latina) in three areas: Produccin Agrcola, Transformacin y Comercializacin.
The program is also registered in SENASAG.

VOR has expressed that many of the smallholder participant farmers already practice organic or
low-chemical agriculture out of necessity. A next step for FNN would be to organize a list of
appropriate third party certification schemes, both domestic and international, with their
certification requirements to determine which certification would be most appropriate in the
context of the participants of VOR.



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5. Conclusion
The purpose of this report was to identify lessons to address specific problems presented by the
Valorizacin de la Oferta Rural project of Fundacin Nuevo Norte. These specific problems
were, on the supply side, issues of trust with farmers and in bringing a safe, high quality product
to high quality markets. On the demand side, FNN presented problems with entering niche
markets with restaurants, grocery stores, and other large scale buyers. These problems were
addressed through examining case studies of aggregate supply that were identified as relevant to
FNN. The case studies examined were of the businesses Moderna Alimentos S.A., ITC Limited,
Engro Foods Limited, and Naturalcos from Ecuador, India, Pakistan, and Bolivia, respectively.
Overall, four lessons about the best practices in inclusive businesses came from the case studies
which were highlighted in this report. The first lesson is bringing inclusive business to scale
through offering bulk packaging for items. The second lesson is building trust with farmers by
providing market information through kiosks. The third lesson is servicing the smallholder
suppliers by training independent community workers. The fourth lesson is obtaining third party
certification to boost international and domestic demand. It is the object of this report that those
recommendations which FNN decides are most applicable may be further researched and
pursued in June and July of 2014 in order to help FNN improve in its identified areas of need.




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