Growing the Wealth of the Poor - World Resources Institute

CONNECTION96W O R L D R E S O U R C E S 2 0 0 8Enabling Local Production and ProcessingPerhaps the most basic function of a rural enterprise association isto enable small producers to pool their resources and achieveeconomies of scale and scope. This can allow them to process locallythe raw nature-based products that they once had to sendelsewhere—products like timber, rattan, medicinal plants, spices,and other non-timber forest products, as well as traditional agriculturalcommodities. Bringing processing closer to home is astraightforward way of allowing local enterprises to reach higher onthe commodity chain and capture greater value from their efforts.In Nepal, the formation of community forest user groupshas created a platform for villagers who harvest forest products,such as jatamansi and wintergreen, to build local production facilitiesand improve their profit margins (Subedi et al. 2004;Pokharel et al. 2006:11). Ten years ago, 90 percent of thejatamansi harvested in rural Nepal was exported to India in rawform, with Indian companies profiting from the processingincome. Today 75 percent of raw jatamansi is processed into oilby Nepali distillers. Similar progress has been made in the distillationof wintergreen. In 1995, little was processed locally, whiletoday almost 100 percent of the harvest is converted into oil bylocal distilleries (Pokharel et al. 2006:36).However, compared with other value-adding businessventures, distilling small batches of wintergreen and jatamansi isrelatively inexpensive. When community forest groups havestarted larger enterprises—like saw and pulp mills—they haverelied on larger organizational structures to do so. An example inNepal’s Kavre district is the Chaubas Wood Processing Enterprise,which is essentially a consortium of four community forest usergroups, each representing about 75 households. The enterprisefunctions like a cooperative, where profits are funneled back to theparticipating community forest groups, after expensing operatingcosts. The community groups have, in turn, used this money tobuild roads and schools, among other development projects. Inaddition to these community benefits, the mill itself employshundreds of local workers, with a payroll of 500,000 Nepalirupees in 1999 (Subedi et al. 2004:34).In agricultural communities, associations perform a similarfunction to promote local crop processing. In the Tecoluca municipalityof El Salvador, farmers and workers in the cashew industryhave organized under the producer association APRAINORESand are now owners of the Organic Cashew AgroindustrialSystem (SAMO, by its Spanish acronym), a local cashew productionfacility. The facility itself employs 68 people and buys cashewsfrom 160 local farmers, most of whom belong to APRAINORES.The sale of cashews has benefited from trade in foreign markets,such as the United Kingdom, the United States, and Belgium(Ford Foundation 2002:42).While producer associations are frequently key in catalyzinglocal investment in processing facilities, the reality is that suchinvestment must often be augmented by external support, at leastat the start. In the above examples, a number of support groups—most of which are NGOs—supplied financial and logisticalsupport in varying degrees to enable the associations to get off theground and build their facilities. For example, the communityforest user groups in Nepal that have benefited most fromjatamansi and wintergreen distilleries are those assisted by NGOs(Pokharel et al. 2006:1). Likewise, CORDES, an influentialSalvadoran NGO, financed and managed SAMO’s cashewprocessing facility initially, as well as assisted in improving thequality and reliability of production—an important prerequisitefor access to foreign markets (Cummings 2004:3). This reliance onexternal start-up support points up the still significant challengesthat rural associations face in improving their technical capacityand obtaining commercial finance.Furthermore, bringing production closer to home does notnecessarily guarantee that producers will benefit financially.Despite increases in local employment and marginal increases inthe value of the product, traders in the middle can still capturethe lion’s share of profit by exploiting advantages in market information(Thi Phi et al. 2004:24).FIGURE 5UnprocessedMilletProcessedMillet*Source: CAPRi 2007:15MILLET VALUE CHAIN IN INDIAFarmTotal Value,Rupees (Rs) per kgTransportMillTransportValue addition centerTransportRetail centerRs6.00Rs7.50Rs8.75Rs10.00Rs16.50Rs27.50Value Addedin Each StepRs6.00Rs1.50Rs1.25Rs1.25Rs6.50Rs11.00Rs10.00Final price = Rs37.50*Prices given per kilogram of processed millet.About 50% of unprocessed millet is lost during processing.Procurement priceat the farm gateDehuskingMillet is polishedand cleaned at thevalue addition centers,which are located indifferent villagesSent to Chennai,usually in bulkto reduce costMostly food markets,such as Spencer’s