‘Social enterprises create new goods and services and develop opportunities for markets where mainstream business cannot, or will not, go.’

The concept of the ‘social enterprise’, stresses the specificity of the mission of such organizations, their aim to benefit either their members or a larger collectivity rather than generating profits for investors. Social enterprises that combine different types of stake holders in their membership place a higher value on economic risk-taking related to an ongoing productive activity.

Running a social enterprise is a dynamic process. It is a balancing act requiring strategic reflection and analysis on the part of managers and stakeholders in achieving an ongoing sustainable impact by incorporating business strategy to accomplish vision.

Organizational effectiveness is based on the ability to define and produce desired outcomes. Social enterprises require all the management skills of the SME sector. As with many smaller businesses, the managers of social enterprises need to be skilled in more than one management function.

This case study is focused on the People’s Organization for Development of Imports and Exports (PODIE), a Fair Trade social enterprise in Sri Lanka.

Peoples’ Organization for Development of Imports and Exports

Peoples’ Organization for Development of Imports and Exports (PODIE) was established in 1979 as a solidarity-based organization founded by the Rev. Harry Hass, a Roman Catholic priest of Dutch origin resident in Negombo, Sri Lanka. Negombo is a fishing town (situated 40 kms. North of Colombo City) having deeply rooted origins to the Dutch colonization era.

Registered as a Company Limited by Guarantee, the purpose of PODIE is to establish a linkage between the disconnected grassroots farmer community and the consumer in the Western World. The primary share holders of PODIE are farmer groups and network of crafts women supplying complementary goods. The Board of Directors comprise of 9 farmer members and one representative of the employees.

PODIE is a leading organization in Sri Lanka networking with over 50 micro farmer groups of diverse cultures located in extremely remote villages in the Island. PODIE has facilitated a strong sustainable market to its farmer members through a global network of mainstream and Fair Trade customers. PODIE also employs 90 women and 7 men at their state of the art post harvesting processing and packaging centres at Negombo.

PODIE is a member of the International Fair Trade Association (IFAT), now re-branded as the World Fair Trade Organization (WFTO). PODIE is certified by international certification bodies for Organic Food Production (SKAL) and conformity to international standards of SQF 2000, namely Good Manufacturing Practices (GMP), Sanitary Operational Procedure (SOP), Standard of Sanitary Operational Procedure (SSOP) and Hazard Analytical Critical Control Point (HACCP).

Values of PODIE

PODIE values their employees at their most important resource in their process. The employees of receive benefits far beyond the others in their locality. Daily breakfast and a side meal is provided to every employees and medical expenses of up to Rs. 5000 (per-annum/ each employee) for out-door treatment, and Rs. 40,0000 (per annum /each employee) for indoor treatment is reimbursed by PODIE . On top of the 15% statutory contributions for employees’ Pension and Insurance schemes , all employees receive a 15% of their basic earnings as a bonus from PODIE that is deposited together with a 10% of employee’s contribution into a compulsory savings scheme.

PODIE as a member of WFTO are committed to uphold the ten standards of Fair Trade. · Creating opportunities for economically disadvantaged farmers who have been marginalized by the conventional trading system. · Transparency and accountability: transparent management and commercial relations to deal fairly and respectfully with all stake holders. · Capacity building: develop farmers’ independence and establish a relationship to provide continuity, during which farmers and PODIE can improve their management skills and their access to new markets. · Promoting Fair Trade: raise awareness of Fair Trade and the possibility of greater justice in world trade. · Payment of a fair price: PODIE has educated their famer members in setting their minimum farm gate prices, ensuring favorable returns to its members. the recent favorable weather patterns have yielded excess out put for many farmers. However, PODIE is committed not to discount below their farm gate price. The farm gate price in local context is one that has been agreed through dialogue and participation. It covers not only the costs of production but enables production which is socially just and environmentally sound. It provides fair pay to the farmers and takes into account the principle of equal pay for equal work by women and men. When market prices fall below cost, all the members are assured of a Fair Trade Assurance price by PODIE. Example: In the recent past due to excess production, the market price of cloves declined to USD 0.40 / kg. However, PODIE’s purchase price of organic cloves from their members was USD 1.40 /kg. PODIE ensures prompt payment to their farmers, and help them with pre-harvest financing free of interest. · Gender Equity; women’s work is properly valued and rewarded, and are empowered in their organizations. · Working conditions; safe and healthy working environment for staff and farmer members. · Child Labour: PODIE respects the UN Convention on the Rights of the Child, as well as local laws and social norms in order to ensure that the participation of children in farming (if any) does not adversely affect their well-being, security, educational requirements and need for play. · Environment: PODIE encourages better environmental practices and the application of responsible methods of production. It was evident that the traditional methods of farming handed over through generations, and changing weather patterns demanded new and stronger chemical based pesticide to control new breeds of threats to farming. The farmers too continued to use these methods being ignorant of the long-term harmful effects created by such practices, and the contamination of the natural ground water resources.

Every farming member is educated by PODIE on the dangers of using chemical pesticides and fungicides and the long term threats of such practices. PODIE together with the farmers do their own research in identifying alternate (natural) methods of pest and weed control : Natural Pests Control Systems (NPS).

This safe method of farming has reversed the process of traditional farming and altered the lifestyles of the entire community. Should the situation demand the ICS has documented methods in the use of toxic pesticides to ensure greater responsibility in minimizing its effect to the soil and the neighboring farmlands.

With the changing weather patterns, and as there is no safe technology developed before to fight newer threats by pests and fungi, PODIE works with farmer members to integrate their knowledge and resources in continuing to develop NPSs. This has proved successful in building greater partnerships and establishing linkages with the external farming community.

PODIE obtains the services of Independent International Certification body (SKAL) to certify some of their members who practice organic farming. PODIE is committed to transform all of their members to Organic Farming Practices and have them certified by end 2010. · Trade Relations; PODIE trades with concern for the social, economic and environmental well-being of marginalized small producers and do not maximize profit at their expense. They maintain long-term relationships based on solidarity, trust and mutual respect that contribute to the promotion and growth of Fair Trade. PODIE as a guarantee company does not distribute profits amongst the share holders, but all profits are retained and invested in producer’s welfare and capacity building (including capital equipment). PODIE also invests its profits in major infrastructure development projects to facilitate farmer organizations in their irrigational and farming activities. Operating System of the Social Enterprise PODIE, with a team of International Consultants and with the participation of its farming members have drafted Quality Manuals (work instruction + SQF 2000 requirements) totaling 600 pages and a documented Internal Control Systems (ICS) that all members and PODIE have agreed to adhere to.

The ICS brought in more discipline and systems in the use and managing of resources available to the community

The documented quality manuals guide all farmer members in maintaining high food quality standards compliant to International Food Regulations in Northern Countries. Assurance of high quality standards from soil preparation to harvesting to processing and packaging have enabled PODIE to be a market leader in Export of packaged Spices from Sri Lanka.

Integrating the Quality Managements System into the operating system of PODIE was a challenge. This initiative demanded more external resources and a slow migration to a new operating system that was demanded by the International markets.

Capabilities Developed by the Social Enterprise

Many of the new farmer groups that join PODIE are informal groups that have been established by the local communities. PODIE supports these groups by institutionalizing such enterprises. When the groups enter the legal system of commerce, they are advised in their form of management. As stated before, some of the rural farmer organizations have no literacy skills. However, under a democratic process, PODIE does not influence the appointment of the leaders of such groups but facilitate meetings and provide advice in formal operations. Depending on the context of the background of the groups, each group receives management and leadership training in relation to their operational activity.

With the fast changing Global demand for organic food, PODIE has been challenged in convincing their farmers to adopt new organic methods of farming. This initiative demanded much efforts in educating the grassroots farmers and training them and monitoring their operations in compliance to Internationally accepted standards (SQF 2000). The Internationally accepted methods of organic farming reversed the process of traditional farming amongst many of the members and altered the lifestyles of the entire community.

The capacity building programs of PODIE, have developed many innovative techniques and skills in farming. These innovative abilities have enabled PODIE to supply the markets continuously-uninterrupted with high organic produce and demand a higher price for their produce and in turn pay higher rewards for the farmers.

PODIE has educated and trained all their members in safe farming methods and many of the farmers are migrating to organic farming methods.

The ICS has enforced a social responsibility amongst the members to developed their own innovative natural pest control systems (NPS) and practices in their farmlands, well aware of their obligations towards nature and society. These innovative methods of pest control are shared freely amongst the members.

With the changing weather patterns, and as there is no safe technology developed before to fight newer threats by pests and fungi, PODIE facilitates the farmer members in integrating their knowledge and resources in continuing to develop Natural Pest Control systems. This has proved successful in building greater partnerships and establishing linkages with the external farming community.

Continuous conformity to above systems and procedure demands much greater commitment and effort from the community. Though this may be seen as a greater commitment from the farming community in ensuring standards through their supply process, these new developments have contributed to greater networking amongst the members of PFA and shaping improved interpersonal relations.

Example: The farming community in Wanniamunukula ( a remote hamlet 210 kms. North of Colombo) never realized the dangers in use of toxic pesticides and fungicides in farming, and the contamination of their ground water resources. One of the first major moves by PODIE in the early 1990’s was to educate the community in the responsible use of toxic chemicals and the migration to organic farming. PODIE educated the community in good practices in the use of ground water for human consumption and sanitation. PODIE provided soft loans to the farming community to re-locate their source of ground water and construct toilets in maintaining hygienic standards and the re-location of the septic tanks.

This change has provided the community with safe drinking water and minimizes the contamination of their ground water resources.

PODIE has subsidized the cost of Solar dryers (50% of) and of Bio Mass dryers (100% of the cost) to its farmer members. farmers are provided with a 100% capital financing for major irrigational projects, while the farmers have to provide labour resources.

Governance

For PODIE the exhaustive documented process (ICS) is an effective system, and not a guarantee that the organization will be successful. They feel an effective internal control structure will keep the right people informed about the organization’s progress (or lack of progress) in achieving its objectives. Everyone in the organization has some role to play in the organization’s ICS, from the Board of Directors, the Chief Executive Officer to the famer members spread through the remote villages in Sri Lanka.

With poor literacy levels amongst some of the farmers, PODIE had more than a regular challenge in educating their farmer members in the ICS. For such groups PODIE have provided external resource persons to constantly monitor the implementation of ICS through their weak farmer members and educate them in the ICS.

The ICS defined as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives” in three categories: · Effectiveness and efficiency of operations. · Reliability of financial and other reporting. · Compliance with applicable laws and regulations.

PODIE’s framework consists of five interrelated components as follows: I. Control environment. Sometimes referred to as the “tone at the top” of the organization, meaning the integrity, ethical values, and competence of the entity’s people; management’s philosophy and operating style; the way management assigns authority and responsibility and organizes and develops its people; and the attention and direction provided by the board of directors. It is the foundation for all other components of internal control, providing discipline and structure. II. Risk assessment. The identification and analysis of relevant risks to achieve the objectives that form the basis to determine how risks should be managed. This component should address the risks, both internal and external, that must be assessed. Before conducting a risk assessment, objectives must be set and linked at different levels. III. Control activities. Policies and procedures that help ensure that management directives are carried out. Control activities occur throughout the organization at all levels in all functions. These include activities such as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets, and segregation of duties. IV. Information and communication. Addresses the need in the organization to identify, capture, and communicate information to the right people to enable them to carry out their responsibilities. Information systems within the organization are key to this element of internal control. Internal information, as well as external events, activities, and conditions must be communicated to enable management to make informed business decisions and for external reporting purposes. V. Monitoring. The internal control system must be monitored by management and others in the organization. This is the framework element that is associated with the internal audit function in the organization, as well as other means of monitoring such as general management activities and supervisory activities. It is important that internal control deficiencies be reported upstream, and that serious deficiencies be reported to top management and the board of directors.

These five components are linked together, thus forming an integrated system that can react dynamically to changing conditions. The internal control system is integrated with the organization’s operating activities, and is most effective when controls are built into the organization’s infrastructure, becoming part of the very core of the organization.

Financing Interventions

PODIE is not an organization dependent on Social funds. Their only form of income is a revenue through the trading activity of spices.

The revenue from trade is heavily dependent on the external market factors and internal controls.

The current economic melt down has forced the regular buyers in the Northern markets to reduce their sourcing from PODIE. Further the unexpected decline of the Euro has declined the profits of PODIE during the past year.

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