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Nature's way Company tries to turn agricultural liabilities into assets

April 20, 1998 Warsaw -

The agricultural sector is often seen as the biggest stumbling block on the road to European Union (EU) accession. But Artur Tyminski and Tokya Dammond think they've found a way to turn some of Polands agricultural liabilities into assets. The two believe that outdated farming practices, namely a lack of pesticide use, presents Poland with a business opportunity in the European organic products sector. So rather than rushing to modernize, they think some Polish farmers should stay just the way they are. Poland is a rare example of how a country so close to the European Union has preserved its traditional, basically organic system,' said Tokya Dammond. "Why go the wrong way with Poland'"

Many farmers would scoff at such a contrarian view. But Dammond and Tyminski have managed to convince the International Finance Corp. (IFC) and venture capital company Caresbac that organic farming offers great potential for Poland. The IFC and Caresbac agreed in March to give Tyminski's and Dammond's company, Symbio Impex, $250,000 to convert 30 small berry farms to organic production. The company hopes to have a total of 270 organic farms around Poland within five years. The rationale for such farming is that organic products can sell at a 30-50% premium to normally farmed products, Tyminski said. We're so far away from Western agriculture that we're, in a way, in front of it,' Tyminski said. 'There's no sense in going toward Western farming.'

I think there is big potential, said David Corbett, chairman of U.K.-based Produce Studies International Research & Consultancy. 'But this is not going to be the salvation of farming in Poland.' The trend in Western Europe towards organically produced foods is visible, Corbett said, but they still make up only a small part of the market, for example 1.5% in the U.K., he added. This is increasing very, very slowly,' Corbett said, adding that consumers tend to have the same quality demands for organic products as they do for conventional ones. 'One should not underestimate the considerable problems.' Farmers such as 43-year-old Mieczyslaw Widelski, a farmer with five hectares of mostly strawberries and wheat, believe the deficiencies in Poland's agricultural sector make it a prime candidate for organic farming. The poverty of Polish agriculture is a big plus for agriculture,' he said. 'We don't have enough money to buy the large amount of chemicals used in countries like Germany and Holland.'

And by combining organic agriculture with agro tourism, which Symbio Impex plans to start on a small scale next year, organic methods could help root Polish families to their small farms for good, he added. In Poland, there is a different mentality (on the farms),' said Widelski, whose farm is located east of Kielce in the Swietokrzyskie Mountains. 'If someone doesn't want to be a huge businessman, it's enough to have a few hectares. I think even two hectares will pay off.'

Symbio Impex's Tokya Dammond is convinced that as large numbers of consumers in Western Europe and the United States continue to turn away from conventional produce, farmers such as Widelski will be in a perfect position to take advantage of changing consumer desires.
There's a large-scale rethinking going on about agricultural sustainability as far as the environment is concerned, and the effects of pesticides and so on,' Dammond said. 'Once we prove that we can get the product marketed and the farmers to cooperate, then we're starting downstream.'
To reach this goal, Dammond formed Symbio Impex four years ago and managed to sign an investment agreement with the International Finance Corp. (IFC) and Caresbac in March for $250,000 in funding. The project will start with 30, five-hectare farms this year and will grow by about 60 farms per year for the next three years, Dammond said.
This allows a lot of people to stay on the farms,' said William Carr, a portfolio manager at Caresbac, which is providing 70% of the financing for the project. 'It really allows for the status quo.'

Caresbac will make a $250,000 investment, including equity and loans 'at fairly commercial rates,' using funds supplied by the IFC/Global Environmental Facility's (IFC/GFC) SME program, aimed at supporting environmentally friendly small businesses worldwide, Carr said. Besides being economically viable, projects must aim to either reduce greenhouse gasses or increase biodiversity to win IFC/GFC support, Carr said. This project does both,' he added. Profit questions

But ecological projects do not always come with a high rate of return, Carr said. While Caresbac expects returns on some of its high-tech investments to hit 60%, they expect the Symbio project to come out at 25-30%.

We don't expect to make big profits in the first year or two,' Carr said. Even if profits aren't guaranteed, Symbio Impex already has taken its first steps to building an organic products business. It has secured a contract with Pro Natura, a French-based broker and wholesaler of organic fruits and vegetables, which will be the main purchaser of organic produce grown on its Polish farms. 'These are not going to be products in and of themselves,' Carr said. 'They are primarily going to be sold to people who make yogurts, jams and so forth.'
Caresbac is also carrying out negotiations with local Polish supermarkets such as Spar Polska (of which Caresbac has a 40% stake) and Le Clerc in the hope that they will be fresh berry buyers, Carr said.

By supplying Polish farmers with wholesale buyers, the project is likely to get high levels of support from farmers, said Marek Gus, president of the Gmina Ecological and Agricultural Union in Kielce. 'This would give them an element of stability,' Gus said. 'It will certainly find eager producers.' The union already has 30 small farms that have been certified by the Lublin-based Polish Association for Ecological Agriculture (PTRE), one of two certifying organizations in the country, Gus said. And because of the desperate situation of many farmers as well as good environmental conditions in the region, Gus expects to have 30 more farms pass the two-year process next year, he said.

'These are farmers with small farms looking for an alternative,' Gus said. 'Everyone is looking for a way to develop. The profitability (of conventional farming) falls year by year.' So far, the few farmers who have gone to the trouble of becoming ecological entities have found little profit, though, because there are no large-scale buyers looking for their products, Gus said. 'They are getting by somehow, but there are no remarkable profits,' Gus said, adding that Symbio Impex's plan could be a way out. 'On such a scale it has got a good chance,' Gus said.

While the Polish government does not legally recognize ecological certification here, it has begun to accept them unofficially, Gus said. 'This is just the start,' he added. 'There is no system of state aid for these producers, so it's hard to move forward. Making the switch Farmers like Krzysztof Bury, who began a transition to organic farming in 1994 after seeing documentaries describing the dangers of chemical usage, hope that Symbio Impex will finally reward farmers for their hard work.

'There's lots of work involved in this,' Bury said. 'And it's hard to talk about demand. It's as if there is none. We're counting on this export being a major incentive.' But while premiums for organic fruits and vegetables tend to be about 30% at the retail level in Western Europe, the wholesale premiums for farmers are only about 15%, warned Produce Studies International Research & Consultancy's Corbett. And although countries such as Germany offer up to DM 700 per hectare, per year for farmers willing to make the transition to organic farming, Symbio Impex's farms will probably have to make the switch without state aid, said Peter Grosch, general manager of German-based BCS ko-Guarantie, which will likely certify Symbio Impex's farmers.

The German certification will give Symbio Impex the legal right to sell 'organic' products in Western Europe, Grosch said. 'The certification process is a legally defined process based on EU regulations,' Grosch said. BCS expects to charge Symbio Impex's 30 small Polish farms about $900-$1,000 each for the certification process, which should last about a week, Grosch said. The process involves on-site inspections including soil samples, field mapping, visible inspection for chemical fertilizers or pesticides on the premises as well as techniques such as crop rotation, Grosch said.

But while the inspections will only last a week, there is a one- to three-year waiting period necessary for any farm that wants to make the transition from a 'conventional' producer to an organic one, Grosch said. And this transition period could make for tough times for farmers who get the financial and labor hardship of switching without the benefits of marketing 'organic' goods, Grosch said. 'Consumers either want organic or conventional,' Grosch said, adding that 'transitional organic' goods have neither price nor nature appeal. 'They want nothing in-between.'

But Caresbac and the IFC are not acting alone in backing the organic project. The Foundation for the Development of Polish Agriculture (FDPA) will also provide farmers with low-interest loans of up to $4,000 per farmer for investments in new types of strawberry bushes, ecological fertilizers and methodological changes in packaging and transport, said Ania Kosidlo, FDPA's deputy director. The loans will likely be 15%, but levels have not yet been confirmed, Kosidlo said. Despite this, a large amount of cheap agricultural labor here could cut the expenses typical of organic farming, Corbett said. And as markets for organics continue to develop in the West, they will also grow at home, he added.

'The Polish consumer will start behaving in the same way as Western consumers very quickly,' Corbett said. 'And there are still niche markets.' If all goes well, Caresbac hopes to sell 21% of its share to either one of its partners, Artur Tyminski or Symbio in the next two years and completely exit, potentially with a sell-off to its current partners, Pro Natura or another strategic investor, within five to seven years, Carr said.

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