Natural Products EnterpriseOpportunities & Potentials

Susan Wren

DefinitionFor the purposes of this presentation Natural Products enterprise includes:

§ Non timber forest products (NTFP), wild harvested and domesticated; such as ethnobotanicals, bee products, essential oil, cold pressed tree seed oils, gums and resins.

§ Organically produced cultivated high value, non hybridised speciality crops such as herb, spice and medicinal species.

Wider Benefits of Natural Products Enterprise

Can provide:

§ Realistic, sustainable and viable options to natural resource utilisation

§ Commercial reward for harnessing and utilizing traditional knowledge and social conditions

§ Long term improvement in environmental and social welfare

Natural Products Enterprise‘Conservation through Utilisation’

Realistic conservation can only be lead through highly tangible and readily delivered incentives!

Predominant Trend…..Rapid loss of the rich and highly valued biodiversity of indigenous plant materials from mounting land pressureand unsustainable utilisation of the natural resources.

Specific threats

§ Population and livestock increase puts higher demands on all natural resources, especially the forest and wet lands – trend is worsening§ Un-sustainable utilisation (charcoal,

timber, short-cut to bee-keeping!)§ Increasing numbers of livestock grazing

within the Forest Reserve throughout the year

§ Decline in rural communities regard for /cultural importance of / need for the indigenous natural resources

§ Urgent need for practical and financially rewarding solutions for Human - Wildlife conflict

‘Development Through Trade’Existing Challenges

§ Poor skills based § Lack of capital or credit § Very small land sizes in viable agricultural areas§ Very little organised natural product enterprise§ Very little direct market linkages (just local sales)§ Low incomes from existing NTFP enterprises§ Donor dependency § Drought cycle§ Low community group cohesion in many areas

Potential

§ Rich bio-diversity > incomes opportunities (i.e top quality honey, essential oil, tree seed oils, ethno-botanical-medicinal plants)

§ Strong culture and traditions (i.e utilise existing trading system and traditional knowledge, such as ethnobotanical)

§ Agribusiness is well established in % EA, also developing in parts of the ASAL with potential for domestication / cultivation of high value NP

§ Willing development and commercial partners§ Forestry and Parks authority increasingly

agree to sustainable NTFP activities

Opportunities

§ Big market demand for natural product ingredients nationally, regionally and globally§ Certification systems for sustainable

wild harvest, domestication and cultivation enabling greater access to premium (apex) markets

Many micro Natural Products enterprises are already established and operational.

Although most require training input, external investment, access to credit, better markets …

Womens’ aloe group atRumuruti

Ethnobotanicals- well established market and high

turnover.

However, majority of these indigenous materials are not

fully sustainable at the increasing uncontrolled

harvesting levels

Traditional crafts have high definition, utility and trade value in most parts of ASAL. Some are of excellent quality but need design, branding, marketing input to significantly improve returns

Central Issues to developing NPs in terms of ‘Conservation through Utilisation and

Development through Trade’

Commercially sustainable & attractive:

§ Community driven § Accessible for communities to start up &

participate in § Achieve attractive incomes in a short

period § Commercially viable long term future

Environmental Sustainable

§ Critical feature of indigenous plant product development

§ Concern to consumers in Northern Countries as well as the environmentalists.

§ ‘Feel good factor’; market interest in organic certification and fair trade – certification rewarded by price premiums.

§ Certification options for community/small holder production of NTFP: Organic (EU/NOP), FSC, Rain-forest Alliance and Fair-trade

Natural resource enterprise opportunities

Wild Harvest of NTFP:

Examples: Bee products, wild silk, wild mushrooms (such as chanterelle, amanita), ethnobotanicals, gums and resins, cold presses tree seed oils, essential oils from aromatic indigenous plant materials (wild ocimums, lipia’s, targette, lelechwa, gums and resins).

1. Rapid evaluation of indigenous plant materials to assess the commercial value, economies of scale and reality for sustainable wild harvest.

2. Development of sustainable wild harvest protocols.

Domestication and cultivation of NPs:

Examples:Low risk and good returns options, include indigenous aloe sp/ss, hoodia sp/ss, African potato (Hypoxis r.), wild yam, prunus africanus, warbergia u/s, etc...

Cultivation of High Value Crops:Small scale cultivation of high value natural products potential, within the various climatic zones, for a wide range of products for national, regional and international markets.

Examples: Low risk and good returns options, include indigenous Mediterranean herbs for culinary and botanical teas, essential oils (utilisation of the lower grades from the dried herb operation), spices such as cardamom, black pepper (higher rainfall areas) and chillies, paprika (lower rainfall)

Drying of herbs and spice, fruit and vegetables (such as chillies and tomato) use same technology.

Example of this increasing international market trend

§ Feb 09 - Over 110 cosmetic companies exhibite in nature products expo in Paris www.natexpo.com, majority show interested in certified essential oils supply.

§ Nov 08 - International Natural Beauty summit. The goal - to monitor market trends to access future products demand info@beyondbeautymag.com. High global % of cosmetic company will attend this conference, (e.g Weleda, Aveda, L’Oreal..). Vice president of l ‘Oreal is in charge of ecological issue, important signs of change in mentality. (Claudie Briand)

National & Regional Market§ Huge market for honey, big demand in Sth Africa and

Middle East for speciality honey§ Specialist companies use natural essential oils

(fragrance) but their demand is relatively small. § Significant under supply of seasoning, relishes, sauces,

pickles; high percentage imported§ Market share for herbal teas is increasing § Increasing interest in healthy food, dried fruit for school

children and adults nutritional snacks§ Within the Eastern African region there are large scale

international traders of natural product ingredients, and smaller producer-exporters who provide a viable and accessible market for small quantities and may represent a starting position for natural products enterprises from this region when output is low volume.

Example - African market for natural bodycare

§ Attractively retail packed and presented aromatic products is strong. Such products are mostly imported.

§ Demand in EA for bodycare products is consistently high – demand by far out-paces supply.

§ A recent study made in Zambia in 2007 estimated that at least 15 million litre of body oil is used per year. It is thought that up to 3-5 times the quantity of body oil is used per person in Africa than in Europe.

§ National market for good quality indigenous body oils is huge, imported bodycare products could be replaced by bodycare products harvested, formulated and retail packed from SHL with more superior ingredients such as cape chestnut and pawpaw oil and fragranced with natural essential oils.

Overview of Building Natural Product Value chains

§ Business planning and market research (plus fostering ownership and business drivers)

§ Developing the physical structure (depots, central processing facility, grading, processing equipment to meet market requirement, or developing a working partnership with a commercial operator

§ Developing and managing the non-physical structure - Internal Control Systems (ICS)

§ Product design, presentation, branding and marketing…

Business principals

Main parameters for defining the viability appropriateness of potential NP enterprise:§ Competitive advantage § Opportunity cost (incl risk over financial

return)

§ Economies of Scale§ Ability to meet market forces

1. Competitive Advantage

The main factors of competing in the international market are the price and the quality.

§ Example: existence of indigenous species, or favourable environment and viability for domestication of NTFP materials that are in constant demand in the market

§ Develop and market the Brand and a strong ‘story line’, this will give competitive edge, if the product quality meets international market standards & buyer specifications.

Domestication Aloe Lalateritia (graminicola)

African PotatoHypoxis Rooperii

Indigenous essential oil species

Indigenous ocimum, lippia species and tagette are wild harvest options for essential oil production, currently active in Kenya. Distillation of these species is useful in keeping the equipment in commercial operation between the main harvest periods of other commercial essential oil crops.

Sustainable Wild Harvest

EXAMPLE: Potential indigenous essential oils

§ Ocimum Americanum§ Lantana Camera§ Tagette m.§ Ocimum Gratissimum§ Ocimum kilmandscharicum, § Becium obovatum § Lippia kituiensis§ Sinoni oil-lippia javanica§ Cyperus Esculentis root § Frankinsense (mainly black)§ Acacia kirkii (Haga), § Qasil (Zizphus mauritiana), § lelechwa-tarconanthus

2. Opportunity Cost

Examples:§ Cost of investment into the equipment and

infrastructure§ Time and cash flow to break even point§ Break-even .v. risk bearing (small holders)§ Availability of trade finance § Trade terms of buyers§ FOB / C&F / CIF§ Grant support? (PPP, PSI, FRICH etc) and

trade finance (Root Capital, Shared Interest..)

Opportunity Cost Clarify the Basic Requirements:

§ The need for producer group§ The need for careful group selection§ The need for appropriate operating and

management design and system§ The need to ensure sustainability

§ .The need for capital assistance§ The need for commercial partners

Risk v. Return

§ High risk often high return

§ Low risk, often low return (and measure in between)

Important need to assess the risk carrying capacity of the producer groups and the return levels that are required in order to hold their active participation in the NP enterprise.

Un-sustainable, poor quality product = No premium market + dwindling resources

Sustainable Traditional Bee Products Development

Traditional v intermediateHives for sustainability ?

Production Techniques& Quality Control

Producers deliver only honeycomb in food grade buckets with lids

Payment according to an established, agreed grading system

Consistent and on-going training in quality protocols

Correct processing equipment and infrastructure

Exporting groups develop HACCP

Adequate Infrastructure for the supply chain to operate efficiently

& to achieve consistent quality

Satellite Depot Centre

Central Processing Centre

Correct equipment for the situation

3. Economies of Scale

§ In order to enter the marketplace producers need to first identify the initial minimum supply levels.

§ Economies of scale must be achieved to; (i) enter and maintain market position (ii) develop improved markets, (iii) ensure equipment is efficiently utilised and down time is minimised(iv) overheads, loan servicing and investment required for operating a developing business are covered by adequate turnover.

Locating species richness/population density for ensuring sustainable wild harvest &

achieving economy of scale

Cape Chestnut – Bodycare industry

Utilising Invasive SpeciesOpuntia – Jam/syrup/beverages/bio-fuels…

Encouraging the utilisation of useful speciesSansevieria robusta

4. Ability to Meet Market Forces

§ Fostering of long term trading relationships

§ Correct and sufficient scale of equipment,

§ Adequate scale-up designed in the initial investment plan re; infrastructure, equipment etc

§ Trade finance

§ Constant organisational and business management and extension support to outgrower/small scale producers

§ Effective traceability and transparency system

Commercial PartnersTo make positive impact on livelihoods and the environment within a given period, and before the natural resource is lost through economic need commercial partners are important augers. This can be developed either as service providers, as shareholders or as a buyer through equitable long term trading relationship.

africa 16.jpg

Steps may include: Visits to and by the company, business plans, MOAs (Memorandum of Agreement), trade finance….

Developing commercial operationsTraining and demonstration

Substantial level of technical training in sustainable wild harvesting techniques, handling, drying, grading and storage, and in domestication and harvesting, processing, storage.

Commercial trials can play a duel role as demonstration sites, if positioned appropriately to allow easy access.

High Value and Value-added products provide greater employment opportunities and incomesfor small scale producers & rural communities

Fair-trade certification helps to ensure equity in trade

ORGANIC, FAIR-TRADE, SUSTAINABLE WILD HARVEST STANDARDS

NON-PHYSICAL VALUE ADDITION

§ Organic standards offer a template for quality§ Offer independently verified traceability

system§ Offer independently verified production and

management system§ Monitoring from soil and seed to finished

product§ Attracts premium prices in export markets§ Attracts higher demand in a competitive

market

Non-Physical Value addition Certification

Small scale producer group certification

• ICS (Internal Control System)• Organic and other certification• Supply chain structure

0. Introduction 16

HIVOS Project Internal Control Systems for various Quality Standards

Group of Nucleus Farms

• Each nucleus group acts as ONE FARM UNIT with regard to standardcompliance

• This implies very close cooperation of farmers. Farmers are not free to decide individually on standard relevant activities, they agree on “one” management. One responsible for the nucleus group.

ICS Operator

Nucleus Group 1 Nucleus Group 2 Nucleus Group 3

WHAT BUYERS NEEDS FROM SUPPLIERS

§ Reliable quality & quantity§ Ability to handle exportation bureaucracy &

logistics§ Conformation to our conditions of supply§ Effective communication. No over-promising!§ Traceability§ Fulfilment of all market quality (& organic

certification) protocols & buyer specifications§ Clear pricing structure§ Consistency in all above

BENEFITS OF STRONG PRODUCER/TRADER RELATIONSHIP

§ To better meet the requirements of the market§ To facilitate information exchange and research§ For specific production/processing advice§ Better co-ordination of cropping plans§ Greater access to correct planting materials§ Wider market access through equitable trading

relationships§ Ensuring correct logistics and transport§ Share some variable & capital costs (such as transport

analysis, certification costs etc)§ Pool expertise & enable more accurate business

planning and investment

What goes wrong with Natural Products / NTFP enterprise development

Is it enough reward?

Lack of Linkage to the Marketand empowerment of producers

(re-structuring the wild mushroom project, Zambia)

Producer Groups need on-going extension support and organisational assistance,

Plus commercial partners