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The NorminVeggies Case
(A paper presented by Ms. Joan Cua Uy during the ADB Investment Forum for Food Security in Asia and the Pacific
on July 7 to 9, 2010 at the ADB Headquarters, Manila, Philippines).
A. Background
Vegetables have primarily been grown by small producers. And these are traditionally marketed to
traders on a spot market arrangement. Very few small producers are able to supply direct to
modern markets like the supermarkets or their consolidators. Although the wet markets still
dominate about 80% of the retail market in the Philippines because they offer more variety at lower
prices than supermarkets, the vegetable industry is rapidly restructuring brought about by the
proliferation of fastfoods, supermarkets, food processors, consolidators, hotels and restaurants.
Modern markets need high quality products in big quantities supplied reliably throughout the year.
Having to operate in a highly competitive business environment that drives them to focus on
efficiency and costs, they also prefer suppliers that are able to organize and integrate their activities.
The procurement requirements and practices of these modern markets in turn have significantly
changed the way farm production, product supply and commercial market transactions are done.
Entry into modern markets requires a major shift in the practices of small producers. They need to
coordinate activities among themselves as producers, and with business service providers and other
stakeholders to ensure that fresh produce is consolidated and efficiently brought from the farms to
the markets. In the southern part of the Philippines, small vegetable producers organized
themselves into an association called the Northern Mindanao Vegetable Producers Association
(NorminVeggies) so they are able to increase participation in the dual vegetable market system of
the traditional and market supply chains.
B. The Challenges and Opportunities in Marketing
NorminVeggies is a non‐stock, non‐profit organization. Organized by 15 producers in 1999, it has
now grown to 177 members comprised of various types who share common concerns and a stake in
the development of the vegetable industry. Membership is comprised of: (a) Independent growers –
those who are small producers but have a financial base and can independently access technologies and
markets, (b) Small farmers – those needing special development interventions to undertake vegetable
production and marketing, (c) Development foundations or non government organizations assisting small
farmers, (d) Corporate farms who can vertically integrate business operations, (e) Input and service
providers – like the seed companies, (f) Local government units – particularly their agriculture departments
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servicing directly the vegetable farmers. The bulk of the membership is made up of the independent
growers and the small farmers with their servicing development foundations/NGOs.
Before NorminVeggies embarked on group marketing in 2005, independent growers and small farmers
belonging to the association marketed their vegetables individually in the traditional wet market in Agora,
the main wholesaling trading center in the region of Northern Mindanao. The corporate farms did not join
the group marketing because they were big enough to establish their own integrated set‐up from
production to marketing.
For the small producers, the prevailing practice was to harvest even without a ready buyer. Under spot
market arrangement, they experienced the uncertainty of fluctuating prices based on the supply and
demand for the day at the wet market. The producers did not have a voice on vegetable handling and
storage conditions. Even if NorminVeggies’ produce were of good quality, the poor handling at the Agora
market had adverse effects on quality that translated into losses of as much as 50%. In turn, traders
imposed high deductions on weight or price to absorb the losses. However, they were not also open to
producers’ suggestions on handling improvements as the traders themselves were the ones who practiced
sorting and grading before they would sell to the supermarkets and fastfoods through their consolidators.
With a very limited window to introduce better postharvest practices, being compelled to accept the
arbitrary deductions on price and weight that drastically reduced producers’ incomes, and being subjected
to uncertainty and risk in the volatile spot market where growers were just price takers, NorminVeggies
saw that its only option for the independent growers and small farmers was to undertake its own collective
marketing program. It sought to participate in both the traditional market chain but with the introduction
of improvements in vegetable postharvest handling while at the same time, it moved into forward
integration activities to be able to tap into the high value, more stable, modern market chains.
With support from its main development partners, Department of Agriculture (DA) and the Growth
with Equity in Mindanao/United States Agency for International Development (GEM/USAID),
NorminVeggies set up in mid‐2005 a consolidation center strategically located in the Agora
wholesale trading center and built its identity as a significant market player. This facility enabled
NorminVeggies to respond to the opportunities of an expanded market in neighboring provinces in
Mindanao, the Visayas islands, as well as in Manila (during the rainy months when it was
competitive).
NorminVeggies has been supplying fastfoods, supermarkets, hotels and restaurants either directly
or through their consolidators in weekly product commitments. The offsizes after sorting and the
buffer supplies are sold in the traditional market. At present, it consolidates a daily product volume
ranging from 5 to 10 metric tons. This facility and its postharvest and marketing services have been
opened to small farmers through the NGOs that are also members of NorminVeggies. The NGOs
have partnered with Catholic Relief Services (CRS) to be able to carry out appropriate development
interventions that prepared small farmers to actively participate in the market chains.
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NorminVeggies is an example of an organization of small producers that have succeeded to
overcome the barriers to entry in the modern markets, while actively engaging the traditional
market of traders in the existing dualistic vegetable supply chain. This paper highlights the mix of
innovations that have enabled their organized group to do it.
C. The Innovations
1. Producer Organizing – The Formation of Clusters
It is often said that the problem of marketing to modern markets is a problem of reliable
product supply. Thus, NorminVeggies first formed its vegetable producers interested to join the
group marketing into clusters. A cluster is an informal group of 5 to 15 members who commit to
undertake a common marketing plan for a particular product (or set of products) for identified
markets. In the cluster, growers get to talk about the market and the value addition in the
supply chain as well as decide as a group on the buyers that will be served.
The cluster is product based, and acts as a product supply unit. All the cluster members follow a
quality assurance plan for each product and a program of production based on marketing goals.
In addition, cluster members share knowhow and best practices in the farm. The clusters always
produce 50% more than what they will commit to contracted markets. Thus, there is always an
expected surplus in the production of each cluster member which goes into the traditional
market after the product sorting and grading process. Each member therefore has a capacity to
supplement the deficiency of other members.
Clustering is the strategy for producers to become a valued supplier. Products are traceable to
the farm and to the grower. A supply and delivery forecast can be made. Quality considerations
can be discussed with the buyers, and advance information can be provided to them in case of
supply fluctuations due to climatic factors. This system of organizing has proved very attractive
to agri‐food companies because the cluster provides the mechanism for quality control, for
quick response to buyer feedback, as well as for implementation of market‐related innovations
as needed. This assures the market that the constraints faced by dispersed small producers that
make it risky for large companies to procure from them are addressed.
2. Collaboration of Clusters of Independent Growers and Small Farmers
There are two kinds of clusters in NorminVeggies: those of the independent grower and of the
small farmer. Independent growers are producers who are financially independent and have
other sources of income. They have more access to capital and technologies, have higher
educational attainment, and are capable to take risks in trying out new practices. They have thus
been the drivers in technology improvements and test marketing activities. On the other hand,
small farmers have farms that are family operated farms. They need assistance to be able to
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access technologies, financing and markets. Currently, this set of needs is provided through
development programs of NGOs, local governments (LGUs) and financing institutions (FIs).
Given their number and geographical spread, they are the producers who can deliver the
product volumes.
Products coming from this combination of clusters provide a supply base to consolidate product
volumes and variety. And this leads to more access to the diversified and predictable markets.
For example, in the supply to a supermarket (Gaisano), products from independent grower
clusters such as the bell peppers, lettuces, broccoli are mixed with those from the small farmer
clusters such as the bitter gourd, squash, eggplants, etc. for supply twice in a week. This is
complementation in supply.
But some products are consolidated together by the clusters of both the independent and small
farmers. An example is the consolidation of bulb onions for a fastfood (Jollibee Food
Corporation) coming from 1 cluster of independent growers (5 growers) together with 8 clusters
of small farmers (altogether 90 farmers) for a program of product supply of one container van of
onions per month. While the independent growers can cluster a monthly planting within their
farms and provide a back‐up of 25% target supply, the small farmers have to plant in batches so
there is a relay cropping and the monthly volume of 1 container van is attained.
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Figure 1. Collaboration of Independent Grower and Small Farmer Clusters for bulb onion supply to
Jollibee Food Corporation
3. The Organization of NorminVeggies as a Specialized Intermediary – Business Orientation with
Development Motivation
The success of NorminVeggies’ marketing program rests on its capacity for supply chain
management that primarily involves handling well the collaboration among its producers, and
their own coordination with the buyers, service providers and other market actors to ensure
efficient product flow from the farms to the buyers. Value chain development that expanded
the market horizon of the NorminVeggies producers was a strategic support provided by
GEM/USAID as part of its bigger program to contribute in industry development.
GEM/USAID’s key enabling support for NorminVeggies took these forms: (a) organizational
strengthening of NorminVeggies as a business service entity, (b) technology development in
production and postharvest improvements, (c) establishment of the consolidation center, (d)
logistical support in the test marketing moves to penetrate the modern markets, (e) formulation
of product quality assurance protocols, (f) installation of business operating systems, (g) conduct
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of vegetable congresses for policy and program advocacy to advance the industry, and (h)
market promotion through participation in trade fairs and support for market encounter
meetings. These were provided in partnership with Department of Agriculture, and with
counterpart support of the NorminVeggies’ members. Thus, with the resources needed, it is
understandable why independent growers with their financial base would be the drivers in the
value chain development.
A key innovation is the organizational character of NorminVeggies. It evolved into an
organization as market facilitator that took up a business orientation, but it also took as part of
its responsibility the support for the small farmers. This development motivation is linked to the
appreciation among the independent growers that much assistance tapped by the association
from the government and its partner, GEM/USAID is not just for themselves but also for the
small farmers. In this regard, it established alliances with NGOs and the LGUs supporting small
farmers.
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Figure 2. NorminVeggies as specialized intermediary.
4. Appropriate Development Support for Small Farmers
NorminVeggies wanted small farmers to be part of the marketing clusters. The association
initially attempted to bring in the farmers to join but they had always ended with non‐delivery
and poor reliability. The limitations of small farmers are difficult for just the independent
growers to attend to. What is needed is the support of development agencies with government
that address the constraints and enable them to be good performers in the clusters.
In 2005, Catholic Relief Services (CRS) studied the NorminVeggies’ experience on clustering. The
lessons on forming growers into marketing clusters and the value chain development moves
were valuable but CRS saw the importance to also undertake the basic work – i.e. the adequate
preparation so they will be ready to engage the market in the first place. This is not easy given
the farmers’ tremendous challenges: poor productivity, infrastructure gaps, poor logistical
capabilities, a lack of understanding on how markets work, lack of credit, fragmented location
and farming activities. All these problems curtailed farmers’ active participation in the market
chains and in gaining from the clustering method.
CRS with its NGO and LGU partners achieved a promising process in preparing farmers for
market engagement in the course of the implementation of the Small Farmers Marketing
Project (SFMP) which was supported by the United States Department of Agriculture (USDA).
Called the clustering strategy to agroenterprise development of small farmers, the approach is a
sequential process consisting of 8 steps that prepares farmers to link with the market, assists
them to be effectively organized into small groups or clusters, and guides them to engage the
market. The first 5 steps comprise the preparatory activities to ensure that there is a higher
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degree of success attained when their actual marketing starts to take place in Step 6 (test
marketing) and step 7 (scaling up). Cluster strengthening activities, including their formalization,
constitute Step 8.
Figure 3. The Clustering Approach to Agroenterprise Development for small farmers
5. Business Organizing – Forward Integration and Market Facilitation
Servicing the buyers require a high level of assurance in the delivery of product volume and
quality based on schedules. NorminVeggies coordinated the needed inter‐related activities such
as production scheduling, postharvest requirements, logistics (land transport, seaport and
airport operations), grower and buyer communication, invoicing, payment collection and sale
remittances to the producers. It organized a management team to handle these various
responsibilities, paid for by the market facilitation fees charged to the producers for these
forward integration services.
While undertaking marketing activities, an innovation in NorminVeggies is that it is not a trading
entity. Rather, it is a market facilitator linking the producers through the cluster direct to the
buyers. The producers are given the buyers’ price and they are therefore accountable for the
product and retain ownership of the product up to the buyers’ end. This encourages the
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producers to supply the best quality since the price is given to them, and all sales are remitted
directly to them after deducting the market facilitation fee based on accepted vegetables.
Conversely, all rejects are individually charged to the concerned grower. Labeling of the
products per farm or producer provides this traceability, and a system to sanction non‐
compliance. An added advantage in the transparency in the sale transactions due to the
facilitation fee system is the building of trust among the producers.
6. Investment in Production Efficiency and Value Addition
Matched with the quality assurance plan is a guide to the producers on what needs to be done
with the corresponding investments to institute the recommended improved practices in
production, postharvest and value addition. The support of government and resource
organizations enabled the producers to invest in indigenous rainshelters, drip irrigation systems,
adaptability trials of various seeds and technologies, packaging and warehousing, and cold chain
services that are critical to attain better efficiencies and higher competitiveness in the market.
For example, NorminVeggies was able to work on cold chain development through the interest
free, 5‐year loan of DA to the association for the acquisition of a reefer truck. It also got
enabling support from both DA and GEM/USAID to establish its consolidation center with basic
equipment (digital weighing scale, plastic crates, computers with software, etc). During the
trials in cold storage shipment, the GEM/USAID support allowed some producers to travel and
observe the results.
While the bulk of resources came from the independent growers of NorminVeggies, these types
of assistance fill the gaps that enabled small producers to respond to market opportunities. The
support of DA, the LGUs and CRS in the rainshelter and water catchments of small farmers
enabled them to attain stable production for inclusion in modern market. Individually, these
production improvement investments would have been expensive to acquire, and the
development of alternative market chains would have been too risky to pursue.
D. Conclusion
The experiences of NorminVeggies in organizing producers into clusters for product consolidation,
in supply chain management and product supply, and in networking with various institutions
demonstrate the significant innovations that successfully increase participation of small producers in
the dual vegetable system of traditional and modern markets. They highlight that many activities
are interrelated, and that competence building linkages with government (national and local),
resource organizations, NGOs, businesses, research organizations are critical in enabling small
producers to attain a breakthrough in the dynamic, modern markets. Overcoming this most
important hurdle is what moves small producers to aspire further and invest in alternative supply
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chains that give them the concrete opportunities for stable incomes and sustainable vegetable
enterprises.
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