SAKAEW ORGANIC ASPARAGUSFARMER GROUP

Thailand

Opal Suwunnamek

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CONTENTS Summary ..................................................................................................................................... ii 1. Background .............................................................................................................................. 1 2. Contract farming system with Swift Co. Ltd, a Thai leading agribusiness enterprise .................... 2

2.1 Farmer’s criteria to join the group ................................................................................................ 2 2.2 Contract system ............................................................................................................................ 2 2.3 Organic certification and documents ............................................................................................ 3 2.4 Billing and payment ...................................................................................................................... 3 2.5 Management and audit systems of farmers’ group under contract farming ............................... 4

3. Asparagus production and distribution ..................................................................................... 5 4. Grower’s living conditions from asparagus production .............................................................. 8 5. Asparagus marketing and Swift Co., Ltd. ................................................................................... 9

5.1 Estimated income and expense of Swift for asparagus ................................................................ 9 6. Results of the participatory systems analysis .......................................................................... 11 7. Key success factors of organic asparagus contract farming in Sakaew ...................................... 15

LIST OF TABLES AND FIGURES Tables Table 1: Main input supplies and expenses (as of March 2008) ............................................................. 5 Table 2: Estimated cost and return from asparagus production ............................................................ 8 Table 3: Estimated cost of asparagus (cost and freight) to the United Kingdom ................................. 10 Figures Figure 1: Map of study area .................................................................................................................... 1 Figure 2: Swift’s collection station .......................................................................................................... 2 Figure 3: Bill issued from Swift to a contract farmer .............................................................................. 3 Figure 4: Audit system of Swift’s contract farming ................................................................................. 4 Figure 5: Asparagus production and distribution flow to the collection station .................................... 6 Figure 6: Asparagus plants ready for harvest, grading on farm and traceability tagging at collection centre ...................................................................................................................................................... 7 Figure 7: Asparagus for British market is packed and calibrated ........................................................... 9 Figure 8: PSA graph for participating group in Swift organic asparagus supply chain ......................... 13 Figure 9: PSA graph for non-participating group in Swift organic asparagus supply chain .................. 14

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SUMMARY This study investigates the organic asparagus supply chain of Swift Co., Ltd in Thailand. This contract farming case shows how the joint action of the buyer company Swift, the local government and technical experts have propelled poor landless households to form producers’ group to grow organic asparagus to the specifications of Swift. Swift is actively involved in supporting the farmers’ group under contract: technical assistance, building of collection and post-harvest infrastructure in the vicinity of the producers’ plots. As a result, the organic farmers have seen their revenues double from their previous cropping system of cassava or maize. The participatory systems analysis for this group of farmers shows that the motor elements that are most likely to lead farmers to convert from conventional to organic farming are a suitable production environment and knowledge & skills on this new mode of production. The market opportunities brought by Swift are also a critical element that is most likely to decide producers to convert. Health and safety issues are classified by the farmers as symptoms of their conversion rather than a determining factor for their conversion to organic practices.

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1. BACKGROUND Sakaew Province is located in the lower northeast of Thailand. Major crops are maize, cassava, sugarcane, and rice. In particular, maize and cassava are widely grown in this province. Although these crops are major agricultural products of Thailand, they depend significantly upon seasonality, which leads to instable income. Data from Thailand’s Office of Agricultural Economics (2006, 2007) state that the yield for cassava in this province was 23 037 kg/ha, while farm price was THB1.12/kg. Therefore, income per year gained from this produce was THB4 128. In addition, income from maize was THB4 479 a year. Because of small land holdings that hardly meet economies of scale and difficulties of market access, small-scale farmer’s lives are plugged into a vicious circle. The introduction of group farming for organic agriculture in Sakaew is an attempt to solve the problems above. The organic agriculture network in Sakaew has been led by Mr Pongsak Thamrongratanasilp, Chairman of the Sakaew Organic Farming Network. Organic crops in this province are asparagus, papaya, and rice. Among them, asparagus plays the key role for the increase of farmers’ income. The Sakaew organic asparagus farmer group was organized in 2000. The market-led system was set up by the Swift Co. Ltd, in collaboration with Mr Pongsak in some areas of former Royal Projects “Tubtim Siam 02” and “Tubtim Siam 05” in Klong Had District, Sakaew Province, which were converted to organic asparagus farms (Figure 1). The asparagus farmer group was then contracted by Swift in 2001, with a total area of 15 ha of asparagus. At first, there were 47 farmer−members; the number of members steadily increased to 500 members in 2005. Unfortunately, heavy rainfall in 2006 and serious flooding in 2007 caused a drastic reduction in the number of members. In March 2008, there were about 200 households of asparagus growers, covering about 48 ha of total farm area. Figure 1: Map of study area

Note: Amphoes circled indicate case study areas. Source: http://www.tat8.com/thai/activities/mapsakaeo.html

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2. CONTRACT FARMING SYSTEM WITH SWIFT CO. LTD, A THAI LEADING AGRIBUSINESS ENTERPRISE Commercial asparagus farming is the dynamic adjustment by organic asparagus growers in this area and Swift to meet the needs of the export market. A mutual agreement has been set up between the farmers and the exporting business.

2.1 Farmer’s criteria to join the group Mr Pongsak works as the coordinator on the farmers’ side. He assisted farmers to form the group. A farmer who intends to join the group must be well trained through the curriculum set up by Swift and the farmers’ network. Monthly trainings and frequent farm visits are included. However, the final decision to select members depends on Swift.

2.2 Contract system Contract farming as implemented by Swift is an instrument that allows produce in the supply chain to achieve safety and organic quality assurance levels through a shorter supply chain. In addition, group contract farming helps small-scale farmers to obtain more income while Swift can be assured of continued produce volumes by applying production planning and coordinating direct access of the produce to its markets. The main condition of the contract is to guarantee a fixed price all year by quality grading of the asparagus. In order to control both quality and quantity of the production, a type of three-year written contract between the two parties has been signed, and can be continued after every three years. Growing asparagus from seeds takes about eight months. Harvest of each crop can then be started every two months from the eighth month, taking a month’s break in between each harvest. Thus, an asparagus plot produces a harvest four times each year. It can be continued until the fifth year. Though Swift intends to renew the contract with each farmer after three years, farmers can choose freely whether they will continue with Swift after the term of contract is terminated or not. Input supplies must be certified as organic. Through the managed supply chain, Swift will introduce reliable input supply enterprises to its members. Technical support and advice on organic farming are given to growers by technicians paid by Swift and invited experts through Sakaew Community College. Collection outlets for asparagus called “collection station” are set close to the farms of the group’s members (Figure 2). Once a farmer enters into the contract, he or she has to follow Swift’s regulations and discipline. A farmer who breaks the rules will be asked to leave the group and will be prohibited from coming back. Figure 2: Swift’s collection station

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2.3 Organic certification and documents Contract and organic certification documents are prepared by Swift for the farmers. The organic farms were successively certified by OMIC (Overseas Merchandise Inspection Co., Ltd.) and BCS öko-Garantie against European Union and Japanese JAS organic standards.

2.4 Billing and payment At present Swift has set up ten collection stations over the province in order to facilitate the access of group members to sell their produce every day. The buying price will be calculated at the collection station after the produce has been graded, which is undertaken by members of the local community who are paid staff of Swift. A bill issued from Swift indicating the volume of asparagus in each grade and the selling price is handed to each grower (Figure 3). The payment is deposited into the bank account of each group a week later. The management committee of each group will manage the distribution of the payment to its individual members. Figure 3: Bill issued from Swift to a contract farmer

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2.5 Management and audit systems of farmers’ group under contract farming The management and audit systems set up within the farmers’ group can be seen in Figure 4. One can notice that in the case of contract farming by Swift, there are three levels of internal audit at the local site, with each level working closely with the others. Growers will be asked to set up a management committee comprising their delegates to handle financial as well as general affairs for them. The expenses for group management will be paid from 1 percent cut of total revenue from each group.

Figure 4: Audit system of Swift’s contract farming

Swift’s local extension officer or agronomist

Members’ management committee

Growers’ group

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3. ASPARAGUS PRODUCTION AND DISTRIBUTION Asparagus is not a major crop in Sakaew. Therefore, growers have to learn about the production of this crop together with the company’s extension officers and invited scholars, in collaboration with Mr Pongsak, the Sakaew Organic Farming Network, and Sakaew Community College. In addition, they have to start growing using organic production methods. These are quite different from conventional asparagus production as no chemical inputs are allowed under organic production and certification by an external certifying body is also required to guarantee that organic production techniques are respected. The main input supplies of asparagus production are shown in Table 1. As a form of managed supply chain by Swift, input supplies applied to the farm have to be allowed by Swift. Swift has to check the source of origin of all input supplies. Input supply enterprises must meet the qualification of international organic standards. Therefore, input supply businesses must register for international organic certification, or at least be able to indicate the known origin of the supply, when they are asked by the staff of the international organic certifying body, such as BCS öko-Garantie. Table 1: Main input supplies and expenses (as of March 2008)

Sources Expense Application period

Seed

Swift (the first time), later it can be taken from the asparagus farm

THB300/100 g of seed THB1 875/ha

Once every four or five years

Organic fertilizer from cow manure or compost1

- bought from nearby area

THB30/20 kg of fertilizer THB4 688/ha

Once per crop cycle (two months) - produce it within a

group

THB35/30 kg of fertilizer THB1 813/ha

Natural pest and disease management solution, e.g. to protect against fungus disease

-“Larminar2” from the company approved by Swift

THB300/1 kg of solution THB938/ha/crop (2 months)

According to the season: Hot – once a week or two weeks Rainy – more frequent, depending on the seriousness of the disease

Bamboo pole -bought from nearby area

THB1/pole THB3 125/ha Changed every 2 years

Rope -bought from nearby area

THB90/kg THB3 375/ha

1 Organic fertilizer is from cow manure. A source of manure is from free-range cows that eat natural grass. Swift has to check that cow manure must be from free-range cows, not farmed cows that live in small space and fed industrial feed. Under inspection by Swift, the asparagus farmers’ group at “Tubtim Siam 02” produces and supplies the fertilizer to farmers who produce asparagus for Swift. Fertilizer can also be bought from some places that have been allowed by Swift. 2 “Larminar” is a brand of organic fungus solution to protect against disease caused by fungi.

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The product flow of the asparagus supply chain in this area is shown below in Figure 5.

Figure 5: Asparagus production and distribution flow to the collection station

Nursery & transplant to the farm (in total 8 months)

Seeds from Swift

Pest or disease controls from

Swift’s approved companies

Organic fertilizer (manure), self-

made, or bought from nearby

About 9 to 10 months

Rest the farm for 1 month

Back to harvesting shoots every day after 2 months, and rest the farm 1 month

alternately

Growers cut and grade their produce according to size specified by Swift

Growers deliver their produce to the collection station

Their graded produce is checked and tagged by Swift’s staff

The staff issues the bill, showing volume, grade and value on each specification, as

well as total revenue for each grower

Money transferred to the farmers’ management committee a week later

Farmgate prices paid for each grade of asparagus A – budding and little bloom, white to green, 5 grades, on specification: THB30−48/kg B – budding and blooming, on specification:

THB22−28/kg C – budding, on specification: THB16/kg A if off specification: THB14/kg. B C if off specification: THB8/kg Z – off specification: THB5/kg.

Harvest shoots every day (5 weeks consecutively for the first

harvesting period)

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After five years of asparagus production, the farm plot has to be left for a year’s rest. Growing legumes twice is suggested to increase soil fertility before the next production. Figure 6 shows the various stages of asparagus harvesting. Figure 6: Asparagus plants ready for harvest, grading on farm and traceability tagging at collection centre

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4. GROWER’S LIVING CONDITIONS FROM ASPARAGUS PRODUCTION Asparagus growers in this area occupy small farm plots of 0.32−0.64 ha per household. Asparagus is a new type of production for them. Nevertheless, an interview of three growers3 showed that they had much better living conditions compared with that from their previous occupation: maize and cassava farming (Mr Rean), leafy vegetables (Mr Somchai) and being an unskilled employee (Ms Ratree). The production plan is set by Swift. Estimated cost and return from asparagus production for each grower is shown in Table 2. Table 2: Estimated cost and return from asparagus production

Ms Ratree Mr Rean Mr Somchai Size of farmland (ha) 0.32 0.64 0.64 Average cost of input supplies (for 1 crop or 2 months) - organic fertilizer or compost (THB/ha) - organic or natural pesticides (THB/ha) - seeds (THB/ha) - other equipments (THB/ha) - hired labour cost (THB/ha) - fuel and electricity4 (THB/ha)

1 823

938 94

520 -

3 281

4 727

703 94

1 563 4 688 4 688

4 727

703 94

1 563 7 500 4 688

Total cost per crop (TBA/ha) 6 655 16 461 19 273 Estimated total cost per year (TBA/ha) 26 620 65 844 77 094 Yield - total yield gained (kg/ha/day) - yield on specification (kg/ha/day) - % of yield meeting specification

94 88 93

109

97 89

156 153

98 Revenue per crop (THB/ha) 221 550 200 102 335 344 Estimated total revenue per year (THB/ha) 886 200 800 406 1 341 375 Gross margin per crop (THB/ha) 214 895 183 641 316 070 Estimated gross margin per year (THB/ha) 859 580 734 563 1 264 281

Notes: 1) 1 crop = 2 months (the period for asparagus to be ready for harvest) 2) Estimated total cost and revenue was calculated based on four crops

The farmers interviewed were very satisfied with asparagus production as their income had doubled or more. Asparagus harvest is dependent upon seasonality as well. According to Mr Rean, the best season for asparagus is between December and March, the moderate season is between April and August, and the difficult season is between September and November because of heavy rain. He also added that yield of asparagus varied between 63 and 156 kg/ha/day from the hardest to the best period of the year.

3 On 12 March 2008. The author would like to thank the three growers: Ms Ratree Santhong, Mr Rean Thongrin and Mr Somchai Sonsiri, for their contribution to this paper. 4 For ploughing and for pumping water in the cases of Mr Rean and Mr Somchai.

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5. ASPARAGUS MARKETING AND SWIFT CO., LTD. Every day Swift’s cold storage truck comes to pick asparagus up at each collection station. Its full capacity is about 3 tonnes a day. On average, about 1.5−1.6 tonnes of asparagus from the ten stations are delivered to the processing plant in Nakhon Pathom, west of Bangkok. Asparagus is kept at controlled temperature storage before processing on the next day. It is graded, cut and packed according to Swift’s customer order (Figure 7). Figure 7: Asparagus for British market is packed and calibrated

Marketing of asparagus is fully undertaken by Swift Co. Ltd, a Thai-owned enterprise and one of Thailand’s leading agribusinesses. According to the Chairperson of the company, Mr Paichayon Uathaveekul, Swift’s mission is to supply only the premium quality produce with highest standard of food safety, and to share mutual benefits to every stakeholder in the value chain. According to Mr Paichayon, “organic cropping is the only survival for Thai agriculture.” The company’s ranges of products are fresh, frozen, dried and processed goods. Markets are in the European Union, Australia, Japan, and the Near East. The main activities of the company focus on asparagus and baby corn. As its main markets are in developed countries, safety standards and quality are just as necessary as a stable volume. GlobalGAP is implemented for farm practices while the packinghouse in Nakhon Pathom conforms to GMP, HACCP, and BRC higher level. Swift supplies Marks & Spencer in the United Kingdom.

5.1 Estimated income and expense of Swift for asparagus Fresh asparagus is one of two most significant produce for the fresh line at Swift. The company has met more competition in worldwide markets while also seeing baht appreciation and increased oil price, so its margin has been reduced and maintained at two percent. Table 3 shows the costs incurred by Swift to send a kilogram of fresh asparagus to the British market.

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Table 3: Estimated cost of asparagus (cost and freight) to the United Kingdom Cost item THB/kg Asparagus 150 Processing and overhead cost 25 Logistic (grading, stocking, product carrying) 5 Packaging cost 7 Refrigerating gel 2 Airfreight 102 Other operating costs (i.e. transport in Thailand, shipping, lab testing, certification costs, etc.) 4 Total costs 298

Notes: 1) Yield of asparagus to the United Kingdom is about 30 percent. 2) The price of asparagus used for estimation is THB50/kg. 3) Other exporters report a cost-and-freight price to the United Kingdom of THB217/kg.

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6. RESULTS OF THE PARTICIPATORY SYSTEMS ANALYSIS In collaboration with Swift Co. Ltd, two areas of organic asparagus contract farming were chosen on public land at Baan Munkhong Chonnabot in Amphoe Wang Somboon, and on private rented land in Amphoe Wang Nam Yen. The two groups of “not join” were selected from households near those areas, by permission of the head of the village. For each group, self-introduction and purpose of visit were introduced. Snacks and drinks were prepared. Some research staff was assigned to talk about general issues, including questions of what we expected from them. For Group A, the question “why did you decide to join organic asparagus production with Swift Co. Ltd?” was raised. Meanwhile, for Group B the following question was asked: “why did you decide not to join organic asparagus production with Swift Co. Ltd?” Each response element was defined by the group and it was submitted to the group to get scorings for the PSA matrix by asking for the influence of each item towards the others. After finishing the procedure, souvenirs were given as a token. Elements identified by growers in Group A as reasons for joining organic asparagus production with Swift Co. Ltd were as follows:

1. Career stability. Stable order, purchasing, payment, and training. 2. Availability of water resource. There is a big reservoir on their farms. 3. Low distribution risk. The collection station is near their farms. 4. Increased health. Safer production thanks to non-chemical practices. 5. Strong institution. 6. Low market risk. Stable market through contracting. 7. Knowledge and information. 8. Stable income.

Figure 8 shows the PSA graph for group A. Some elements had a high degree of interrelation, namely, career stability, strong institution, increased health, stable income, and low market risk. These elements can be influenced by many direct and indirect components. On the other hand, availability of water resource, strong institution, low market risk, and knowledge and information had an active influence. It can be implied that availability of water resource and sufficient knowledge and information were active elements for joining the Swift supply chain. The land area is owned by a public organization. Furthermore, various facilities including water-pumping machines, water pipelines and sprinklers, which are the main factor for asparagus production, have been provided by the local administration offices. In addition, when the market is stable, knowledge and information gained from Swift, the provincial government and the community college have helped their income and career stability, and bettered quality of life. Elements identified by growers in Group B for deciding not to join organic asparagus production with Swift Co. Ltd were as follows:

1. Low soil fertility. Cassava is adapted to grow in this area. 2. High investment. It is costly to switch to asparagus production. 3. High labour use. Organic asparagus production is labour-intensive. 4. Too much time spent. Asparagus production takes a lot of time of producers. 5. Lack of water resource. 6. Difficult production. Many steps for asparagus production. 7. Difficult post-harvest. Many post-harvest steps for asparagus production.

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8. Lack of knowledge and skill. They have heard about organic production, but did not know how to implement it.

Figure 9 shows the PSA graph for group B. Low soil fertility, high investment, lack of water resource, difficult production, and lack of knowledge and skill played an active influence in the farmers’ decision not to join the Swift supply chain. Just like Group A farmers, they reported that asparagus production required sufficient water resources and sufficient knowledge. In addition, low soil fertility made cassava the crop of choice. For these farmers with their own private land, infrastructure such as water resource and improvement of soil fertility to start organic production would need high investment from their own capital. This was rather difficult for them to fulfill; they added that growing organic asparagus consumed lots of time.

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Figure 8: PSA graph for participating group in Swift organic asparagus supply chain

Coordinates of elements No. Elements Activity ratio Degree of

inter-relationship 1 Career stability 0.7 141 2 Availability of

water resource 3.3 38

3 Low distribution risk 0.8 69

4 Increased health 0.7 118 5 Strong institution 1.4 140 6 Low market risk 1.1 87 7 Knowledge and

information 1.7 47

8 Stable income 0.6 94

80

160 Symptom Critical element

Buffer Motor

Deg

ree

of in

ter-

rela

tions

hip

Activity ratio 10

Strong institution

0 1

Increased health

Stable income

Knowledge and information

Low market risk

Career stability

Availability of water resources

Low distribution risk

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Figure 9: PSA graph for non-participating group in Swift organic asparagus supply chain

Coordinates of elements No. Elements Activity ratio Degree of

inter-relationship 1 Low soil fertility 1.9 21 2 High investment 1.3 81 3 High labour use 0.6 65 4 Too much time

spent 0.8 118

5 Lack of water resource 1.6 20

6 Difficult production 1.2 45

7 Difficult post-harvest 0.8 42

8 Lack of knowledge and skill

1.6 20

70

140 Symptom Critical element

Buffer Motor

Deg

ree

of in

ter-

rela

tions

hip

Activity ratio 10

Low soil fertility

0 1

High investment

Difficult post-harvest

Lack of knowledge and skill

Difficult production

Too much time spent

Lack of water resources

High labour use

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7. KEY SUCCESS FACTORS OF ORGANIC ASPARAGUS CONTRACT FARMING IN SAKAEW This study shows that the driving factors that impacted on farmers’ decision to join organic asparagus production with Swift could be categorized into two main factors: 1) sufficient physical infrastructure for agriculture, especially water, fertile soil, and land use; and 2) sufficient knowledge and skill, including training on asparagus production. The upper-left quadrant of the PSA graph for Group A of participating farmers shows that some of the reasons expressed for joining are actually symptoms of having started organic production: good income, better health and a stable career. Group B who did not join explained this because of their limitations of low soil fertility, lack of water resource, the difficulty of organic asparagus production, as well as insufficient knowledge and skill on this mode of production. Recommendations to encourage more growers to convert to organic asparagus are: 1) the partial or full support from the government of physical infrastructure, especially water resource and land suitable for agriculture; and 2) provision to growers by the government, academia and the contract buyer of knowledge, training, and communication of correct information on organic asparagus production. According to the chairperson of the Swift Co. Ltd, just like other managed contract farming in other areas, the key success factors of the Swift model of asparagus contract farming that can be seen in Sakaew are:

1. Group organization and production planning by the customer to get enough volume and stable supply;

2. Training and transfer of technology in four key fields: a. Organic farming practices to meet European Union and Japanese organic standards; b. Group management; c. Farmer’s attitude; d. Collective responsibility to maintain group discipline;

3. Developing a “partnership” with farmers; 4. Fair pricing policy.

However, the model cannot succeed without “true spirit” behind the model.