Services Help Desk for Sustainable Businesses Program in the Brazilian Amazon: An Analysis of Benefited Enterprises.

Transcription

1 Services Help Desk for Sustainable Businesses Program in the Brazilian Amazon: An Analysis of Benefited Enterprises (May 19, 2009) Amigos da Terra Amazônia Brasileira (DRAFT Not for Circulation) EXECUTIVE SUMMARY A growing number of Amazonian small-scale and community-based productive enterprises have been developing commercial activities with non-timber forest products which can generate income for poor communities in an environmentally sustainable manner. The contribution of these activities to poverty reduction and environmental conservation can be very important if they are upscaled to a regional level. However, access to markets, technology, human resources and marketing strategies are rarely available to rural small-scale producers in Brazil, particularly in the remote Amazon region, and these obstacles can hamper the potential contribution of nontimber forest enterprises to social and environmental improvement. The obstacles small scale rural activities in the Amazon region face stem from two principal conditions which do not affect larger enterprises in other regions. One condition is that of their small scale itself and the other is that of their being typically located distant from major centers, both resulting in increased costs of transportation and inputs. Additionally, they face problems related to small local demand due to low population density and low income of local populations, as well as poor access to information and technologies adapted to local conditions. The Services Help Desk for Sustainable Businesses Program (hereafter referred to as Help Desk) provides Amazonian community and small enterprises with the type of support that facilitates their access to the services they most lack, such as legal support, training in finance and business management, marketing, access to incentives and exemptions, as well as building producerindustry channels and laying the groundwork for product certification. It also facilitates relevant institutional arrangements with state, federal or private institutions to make services available on a permanent basis. The program s overall goal is to help generate income and other longer-term social benefits for the local population, while mitigating the risks associated with productive activities based on natural resources. In 2002 the Help Desk identified approximately 400 small-scale Amazonian enterprises of which 250 were visited and, subsequently, 43 selected for receiving program services. The identification and selection considered not only the condition of access to several services but, at the same time, if enterprises showed determination and commitment in the search for ways to

2 promote both the growth of their particular business and its sustainability. Targeted communities include almost 5,000 families of extractivists, smallholders and tribal groups dependent on these enterprises, whose marketed products include unprocessed or processed Brazil nut (for example, in the form of biscuits or oil); jams and pulp of local fruits; rubber; heart of pupunha or peach palm; guaraná; honey from indigenous bees; cocoa; soaps and aromatic oils; and handicrafts. The Help Desk assumes the costs of the services for the selected undertakings through a contract that establishes rights and responsibilities of both parties. It can provide services in different ways: if a prospective firm is not ready for a process of structuring and growth that obviously implies changes and risks, the Help Desk can provide guidance without commitments about specific production, administration, credit and marketing aspects. If the business is running smoothly and its administrators consider that they only need advice about a specific aspect that could make the difference, it provides specific guidance on how to resolve the referred question. If the business has a clear sustainable growth potential and its directors have an unequivocal determination to face a structural strengthening process, it may be selected to receive an integrated consultation. Also businesses that are purchasers (actual or potential) of Amazonian products be they from within or outside the region, and need orientation to guarantee scale, volume, quality, delivery scheduling or even to have access to specific products (for example those with forest certification), may also become clients or partners of the Help Desk. This study evaluates the evolution of enterprises benefited by the Help Desk over the period between 2003 and 2008, with respect to socioeconomic and environmental aspects. It uses data collected in 2008 about the enterprises current situation and data collected at the beginning of Help Desk services. The study does not aim to evaluate the impact of specific Help Desk services, but to analyze more generally the situation and the evolution of enterprises over this period. The study is based on a sample of beneficiary enterprises, and the analysis is developed separately for sub-samples of micro and small enterprises, separated according to the criteria defined in the Estatuto da Microempresa e da Empresa de Pequeno Porte ( Micro and Small Business Statute - Law No of 5 October 1999) 1. Micro-enterprises are defined as those with gross annual income up to R$500,000, while small enterprises have income above that and up to R$2.6 million 2, 3. The study is based on data from a sample equivalent to 54% of the total number of enterprises, thus representing a significant number of the beneficiary group 4. Of all beneficiary enterprises 1 Total gross income values used in defining micro and small enterprises were updated by the Brazilian inflation index IGP-DI for In this study only one enterprise had gross income above the limit for small businesses, but was included in the small enterprise group. 3 At the end of 2008, US$1 was equivalent to about R$2.2 4 Due to difficulties in contacting various enterprises whose only contact was a cellular phone or the phone of some neighbour, various enterprises were not included in the study. Also due to this, the sample may be biased towards better established businesses-which could be over-represented, but since the analysis is presented separately for small and micro businesses (the latter likely less well established), the results likely are not affected by this bias.

3 we know that 9% had closed by the end of 2008, a mortality rate close to the national average rate, which in 2001 was 16% and 7% for micro and small enterprises, respectively (IBGE, 2003). The majority of enterprises indicated various improvements, but there are large differences between micro and small enterprises This study indicates that there were significant improvements in most enterprises in the period analyzed, but in general businesses in the group of small enterprises improved more than those in the micro group (Table 1). Around 80% of all enterprises indicated that sales and income had increased over the period, but the magnitude of the increase was larger for small businesses. In the period between the beginning of the Help Desk services (varying between 2003 to 2005) and 2008, small businesses gross income increased on average 1,000% to 1,500%, while for micro enterprises the increase was on average 120% 5. The number of trained employees also increased, as indicated by 100% of small and 63% of micro enterprises. Increased access to credit and donations was indicated by 80% and 60% of small and micro enterprises, respectively. Approximately 70% of small, but only 13% of micro businesses, increased the number of commercial partners in the period; also in relation to product certification small enterprises improved more: 43% of them obtained certifications in the period, while in the group of micro enterprises there were no new certifications, despite the fact that several of them were in the process of obtaining one. The only aspect in which micro enterprises improved more than small ones relates to the enterprises governance status, as 40% of micro businesses created governing boards and statutes during the period, while all small businesses had already put these in place before the Help Desk services were initiated. Land tenure security was another aspect in which the evolution over the period was similar for both groups, small and micro enterprises, as will be detailed later. 5 These figures are based on a smaller number of enterprises that reported incomes for both periods: entry profile and 2008, therefore these are not reported in the Table 1.

4 Table 1. Average change in indicators over the period between beginning of Help Desk services and Small Enterprise (Gross annual income above Micro Enterprise (Gross annual income below Gross income increased 86% 75% Established governing board 0% 38% Established statutes 0% 38% Obtained product certification 43% 0% Increased number of trained 100% 63% employees Increased number of commercial 71% 13% partners Obtained new loans or grants 86% 63% 1. Averages for small and micro enterprises include data from 7 and 8 enterprises, respectively. The total number interviewed was 17 enterprises (some interviewees were unable to respond along some of the indicators, and were considered missing values). In addition to improving more over the period analyzed, the situation of small enterprises in 2008 was also better than of the group of micro businesses. Aspects such as access and amount of credit obtained, commercial contacts, export channels, employees trained in management and marketing, technical and financial support from partner institutions for logistics, product certification and governance status, were all better in 2008 among small enterprises (Table 2). Micro businesses in general face problems with basic services related to market access, certification, credit and technology. Therefore, results on the evolution as well as on the level of these indicators suggest that they are all important for the establishment of larger scale activity. Table 2: Average characteristics of enterprises in Small Enterprise (Gross income above Micro Enterprise (Gross income below Gross annual income median (R$) 800,000 38,400 Board is functioning 100% 38% Have statute or social contract 100% 100% Received loan or grant between 80% 63% 2003 e 2008 Value of loan for those which 1,119, ,500 received one (R$) Value of grant for those which 310, ,700 received one (R$) Have trained employees in: Resource Management 83% 86% Production processes 100% 71% Harvest techniques 100% 57% Processing 100% 71%

5 Administration/marketing 100% 43% Have at least one product certified 86% 25% Have institutional support for: Technical 71% 75% Training 71% 63% Finance 67% 63% Logistics 50% 25% Marketing 67% 50% Have commercial partner 71% 25% Export part of production 43% 13% 1. Averages for small and micro enterprises include data from 7 and 8 enterprises, respectively. The total number interviewed was 17 enterprises. Family income of base suppliers increased The 2008 survey included questions about the evolution of income for the families that provide either the raw or the processed material marketed by the enterprises. In most cases it indicated that suppliers incomes had increased over the period, though here also there are differences between the groups of small and micro enterprises. The majority of enterprises (80%) indicated their suppliers income increased, while 20% did not have enough information to answer to this question, all of these being micro enterprises. In addition, the level of suppliers income in 2008 was higher for small enterprises: monthly family income ranged between R$700 and R$2.000 for small, while it was around R$300 in the group of micro enterprises. These results indicate that the scale of commercial activity of an enterprise directly affects the income of those families that produce the materials they use. The survey also indicates that small enterprises have a significantly larger number of suppliers, on average about 470 per enterprise, versus 80 in the micro enterprises. These two results together suggest that the larger the scale of commercial activity, the larger is the number and the income of suppliers linked to an enterprise, both of which have a positive effect in terms of social sustainability. Moreover, a couple of enterprises have cited that a higher income for suppliers is an important basis for the sustainability of commercial activities. This is likely to be the case because higher remuneration results in more stability in the provision of the raw or processed product, which is crucial for obtaining and maintaining commercial contracts. Environmental conservation initiatives are more common among small, but also present among micro enterprises A larger proportion of small enterprises indicated that their associates, cooperative members or suppliers implement environmental conservation actions. As can be seen in Table 3, around 70% of small enterprises indicate that their members implement some type of action that helps in environmental conservation, such as actions to maintain forests in 80% of their properties

6 (known as reserva legal -legal reserve: the proportion of land that must be kept in native vegetation, by law, which in the Amazon region must be equivalent to 80% of each property), or that maintain forested areas along watercourses and higher slopes (known as areas of permanent preservation ), implementation of agro-forestry systems, actions to restore environmental services, etc. Other actions applied with a slightly lower proportion are communally agreed rules for resource management and adoption of environmentally safe processing. Among micro enterprises only between 29% and 43% indicated the adoption of environmental conservation actions among their suppliers. Table 3: Average enterprise characteristics related to environmental aspects, There is strong pressure for deforestation in the region where producers are located There is little pressure for deforestation in the region where producers are located 2 Environmental conservation actions implemented: Preservation of areas of permanent protection and legal reserve Restoration of environmental services Small Enterprise (Gross income above Micro Enterprise (Gross income below 29% 63% 57% 13% 71% 43% 71% 29% Agro-forestry systems 71% 43% Intensive management of 14% 29% pastures Basic sewage treatment 29% 43% Environmentally safe processing 57% 29% 1. Averages for small and micro enterprises include data from 7 and 8 enterprises, respectively. The total number interviewed was 17 enterprises 2. The proportion of enterprises which indicated that there was no pressure for deforestation in the area makes up the rest of the cases There are a few possible reasons for why we found such a large difference between micro and small businesses regarding environmental conservation. These could related to location, or relate to specific characteristics of the enterprises. One possibility is that a greater proportion of small enterprises is located in areas where there is greater pressure to cut down forests and, therefore, they would need more conservation actions to maintain the natural resources on which their commercial activities are based. However, this does not seem to be the case because, according to the survey, a greater proportion of micro enterprises indicated higher pressure for

7 deforestation in the region where their suppliers are located (63% and 29% of micro and small enterprises cited this, respectively). Secondly, a preliminary analysis of levels of deforestation by municipality, using data from the DETER deforestation monitoring system of the National Institute for Spatial Research (INPE) in the period between 01/01/2007 and 10/31/2008, indicates that municipal deforestation rates are similar in the samples of micro and small enterprises. Therefore, the difference in terms of conservation actions more likely are related to specific characteristics of enterprises, possibly including: (1) the capacity of small enterprises to provide their suppliers with a more stable and lucrative alternative to deforestation; (2) among small businesses there is a greater perception of financial gains from environmental conservation, which is cited by 86% of the small and only 38% of the micro enterprises; (3) among the small, the perception that environmental actions are a logical result of their commercial activities is greater: 100%, compared to 50% of micro businesses indicated this in their interviews; and (4) with more certified products and larger scale activities, small enterprises are more likely to be subject to inspection and stricter rules on resource management and extractive practices in order to maintain their certification. Moreover, improvements in management practices contribute to a potential increase in income stability through the diversification of production. Improved management often permits the use of raw materials that previously might have been discarded. For example, one of the enterprises which processes fruits had previously discarded açaí seeds, but now they are being used by the community for the production of handicrafts. Some of the reasons cited in the interviews for implementing environmental conservation actions are described in Box 1 below. Box 1. Reasons cited for implementing environmental conservation actions Several of the respondents cited the following reasons for implementing environmental actions: the relationship between the producer and his land has changed because once he stopped cutting down trees the productivity of his land increased, as well as increased the quality of the product ; preserved land produces a better quality product and this results in a positive price differential, especially for fruit jams and processed cocoa ; the benefit of maintaining or planting trees is immediate in the case of honey production because the time needed for collecting honey in a degraded area is 10 times more than the time needed to collect the same amount in well preserved areas ; those who have obtained product certification cannot allow deforestation in the areas that must by law be preserved on their land.

8 These results indicate that increased commercial activity, at least up to the scale of small businesses, more concern for social aspects and environmental benefits are all linked, and depend in great part on the capacity of enterprises to provide better income to suppliers, associates or cooperative members and on their perception of financial return to environmental conservation. Improved land tenure security indicated by 70% of enterprises interviewed The majority of enterprises interviewed indicated that the land tenure situation of their associates, cooperative members or base suppliers had improved over the period analyzed. The proportion is similar between enterprise size classes, with around 80% and 60% in small and micro enterprises, respectively, indicating that several of their associates or suppliers had obtained or were in the process of obtaining land titles. Various have cited the support of the enterprise in this process, in the form of, for instance, contacts with relevant public institutions and in obtaining necessary documentation. Land security is of crucial importance not only as a means to access public and private financing but also for the realization of the potential of forest resource based enterprises to reduce poverty. It is also crucial to provide the long term security necessary to husband the land and the forest resources that lie on it. The type of services provided by the Help Desk can help micro enterprises reach the scale of commercial activity of small businesses, improving their chances for social and environmental sustainability Some of the services provided by the Help Desk, such as help in establishing commercial contacts and in obtaining product certification, were indicated as important by 60% of all enterprises, equally by small and micro businesses. However, a higher proportion of small enterprises actually obtained product certification and a larger number of commercial contacts. Although the support from the Help Desk in these items probably was not the critical factor in the process to attain higher proportions on these indicators, it points to possible directions that may enable micro enterprises to achieve a higher degree of sustainability in commercial, environmental and social aspects. It is interesting to note that almost half of the enterprises identified as small scale in 2008 were micro enterprises in the baseline year ( ), when they first received support from the Help Desk. Therefore, they grew considerably in a period of 3 to 5 years, up to This analysis suggests that future actions with sustainable businesses in the Amazon should take into consideration the positive effect of scale on social and environmental aspects and focus on services that can help micro enterprises to grow and get better established. It suggests that services such as those provided by the Help Desk should be targeted mainly at micro enterprises, with the objective of strengthening the aspects that facilitate the transition to a larger scale of activities given that, as suggested by the results of this study, small businesses are more

9 sustainable socially and environmentally than micro enterprises. Helping micro enterprises is also important given that it is through them that, more frequently, low income families have access to commercial activities and, therefore, there is a greater number of micro scale enterprises that can serve as startups toward sustainable enterprises.