Strengthening Business Management in the Ecuadorian Amazon

By Ian Robinson, F2F Volunteer in Ecuador 

It’s a Tuesday morning in Esfuerzo, a rural community in the Ecuadorian Amazon. As the clock hits 9:00 am, a handful of individuals gather in a covered area on the side of the road, each of them carrying a shovel, ax, or hoe. Six piles of decomposing organic waste are spread out across the ground beneath the structure, each pile at a different stage in the process of transformation from vegetable scraps to becoming compost.

For the last ten years, these Tuesday morning work sessions have been a weekly tradition in Esfuerzo, one of ten communities in the area to participate in a program that transforms organic waste from municipal markets into nutrient-rich compost. When the waste decomposes, the municipality helps the communities market and transport the fertilizer to their final customers.

Residents estimate that they produce 500 40-kg sacks of compost each year and generate over $1,200 in revenue. They also use the fertilizer on their own crops and take advantage of the work sessions as an opportunity to socialize with neighbors. A portion of the proceeds also support the community association’s development efforts. Much like the compost, this operation has grown organically.

As the operation continued to grow, the participants never accounted for the operation’s profitability. After ten years in business, they weren’t sure whether they were making money or how long it took to transform the market scraps into compost. They were enjoying the fertilizer, income, and camaraderie it provides but were also curious about how much they were making.

As part of a Farmer-to-Farmer Flex volunteer assignment with the Arajuno Road Project — a local NGO that strives to support healthy communities and a healthy environment for communities along this stretch of road in Ecuador’s Upper Amazon Basin, I worked with the members of the Esfuerzo compost group to develop a management control system to track revenues, expenses, member participation, and production to develop a clear idea of the plant’s operations. Arajuno Road Project has worked with the residents for many years on different initiatives. Their leadership worked with the Esfuerzo leaders to identify this opportunity during my F2F assignment.

I began the workshop by asking participants to think individually about why it’s important to know how much money a business is earning. They then discussed their thoughts with another member of the group before they shared their ideas with the group.

I then divided the group into two, asking each group to make a list of the information they would need to keep track of to be able to calculate profitability and design a format that would allow them to do so. One group presented a format that detailed daily entries into a register, while the other group had created a format that represents an end-of-period report. I explained that any management control system must be able to do both. We spent the next few minutes reconciling the two groups’ ideas into an easy-to-follow format that could also be used in their homes.

A digital printout of these sheets now hangs on the wall in the fertilizer plant as a reference. It contains examples of how daily bookkeeping formats and explanations on what to do at the end of the period to understand their net income. The Arajuno Road Project staff will regularly follow-up with the Esfuerzo composting group to make sure that they are following their new accounting guidelines.

At the end of the workshop, we calculated an estimate of the operation’s yearly profitability. We realized that nearly half of the company’s costs come from purchasing a dump-truck of chicken manure once per year, residents use approximately half of the compost on their own farms, they weren’t sure how long the process of making compost makes, and they do not have any direct labor costs. We discussed the implications of these takeaways and created additional spreadsheets to monitor production and weekly attendance at workdays to answer these questions.

The compost program is a side hustle for these farmers. Most of their income comes from their own crops. Learning how to keep track of their income would be transformative for their day-to-day lives as smallholder farmers. I framed the workshop activities as structures that could also benefit their own households as well.

It is relatively uncommon for microenterprises in the area to keep a written account of their basic accounting. Instead, they depend upon mental accounting to track this information. That data can fall victim to biases, selective memory, or any other peril that would base decisions misinformation. By using basic accounting tools track their business (and home) income, the residents of Esfuerzo now have the tools to understand profitability and make data-driven decisions to try to increase it.