The Agrofinanzas model in Mexico does just that - see my post earlier in this discussion. Would be curious to know whether folks have seen other companies say in other regions using a similar model?
We've seen companies make the business case based on on long-term projections of supply and demand imbalances, or public targets and commitments for sustainable sourcing. This has been the case in, for example, cocoa and tea.
Thanks Andrew! What's the longest example of "long term" that you've seen - any investment they believe will pay off in more than the 2-3 years Jane mentions? I've seen 4 years, and that did rely also on the "CSR" type arguments.
From my experience companies in the cocoa sector are generally looking at a projected supply-demand imbalance in 2020 as the driver for action. Definitely longer than 2-3 years. Interestingly, in cocoa it seems to be donor time horizons that are shorter.
We've seen 5 year commitments, but they too had programmatic "CSR" type commitments. I wouldn't, however, discount the recognized long term profit incentive of those examples. In the cases we've seen, the company is blending participation from those internatlly that have short term horizons with those who can provide investment from core funding at the corporate center. Furthermore, the investment sits within a larger strategic frame...it can be subsidized market entry where the firm needs to know a market better before making bigger and more diverse investments.
Great Discussions!!! I would like to know more about the contracting issues and how to embed the service cost with the financing packages for the small holders.Generally developing financing scheme for small holders is costly process. On the other hand many other high risks factor are involved, hope there are some successful models to share
How does the smallholder finance picture change if we focus in on markets for nutrients as they flow from environment through land and agriculture to food systems?
Ashoka's recent international work with leading social entrepreneurs reveals budding innovations and transactions at different points along this "nutrient value chain," focusing on nutrients as they connect land, crops, food and people, with demand fueled by the resulting improvements in human health.
One implication seems to be that smallholder farmers play an essential and potentially profitable role in maintaining the overall nutrient security of their local regions or landscapes, which feed into their agricultural plots. This suggests that nutrient-rich land and the surrounding communities and ecosystems which maintain it can gain considerable, transactable economic value. Has any other evaluation or demonstration of this proposition taken place?
Second, the definition of commitment is needed. Many of these programs are "traunched" -- the longer term agreement we've seen go up to 10 years. It's broken up, however, into phases to actively manage risk/performance. So the intention is there...
The other point on this that strikes me -- we see the limiting of the term of investment as or more often from the public sector partners. The political cycles of any organization can discourage really long term activity.
Dropping it below the programmtic level to the financial product level I think obviously changes the discussion a bit.
On Monday together with Business Fights Poverty and ANDE hosted an excellent discussion with a range of stakeholders including NGOs, DFID, companies, government organizations and experts in the field of small holder agri financing. It transpired that while appropriately structured ‘financing’ is an issue, aggregation through coops or other groups, upgrading farmers’ technical skills, financial education and business skills are also critically important.
Good approach, generally such holistic approach effectively works at small holder’s level
Correct me if I am mistaken but don't you think The Buyers are acting like middlemen to facilitate the payment to farmers. It increases the cost of capital to farmers and also creates a conflict of interest.
Precisely developed on existing trade models in different developing countries where farmers are compelled to sold their produce to money lenders. Pepsi tried this model in India with potato farmers involving a non-profit BASIX and it was not successful as farmers interests were compromised.
I would also like to know what kind of profit sharing mechanisms are their for Government as it is providing most of the Capital for the program.
An additional area which also came out from the debate on Monday - is where business accountability begins and ends, or as described by Unilever the 'overlap with the community'.
I think business quite often gets drawn into philanthropic efforts which do address critical situations at a community level.
Defining the overlap and accountabilities between business, governments and donors is essential in order to build the successful and long term commitments we are discussing.
While you make a valuable point that the incentives can be misaligned, particularly where there is extreme buyer power in a given community, the presence of a trader as buyer doesn't always nor typically mean that there is market dysfunction. The traders in many markets provide an aggregation role and take on financing risk that others providing different value in the market (processors, manufacturers) do not want to extend into.
Thanks for a great discussion. Lots of food for thought as we continue to all work on these issues. Tom and I are signing off for now.
It is exciting to see the diversity and, at the same time, relevance of everyone’s comments spurred by the Dalberg study. Look forward to the momentum of this event to synthesize all the ideas coming out of these discussions and translating them into actionable initiatives!
Lots of great comments posted in this discussion! Thanks to all those who have participated! We'll keep the discussion open, and encourage you to continue to add your ideas and questions. We'd be particularly interested in hearing more examples of what has worked and what hasn't.
Lewis ,
Good to hear about the successful example of CETZAM Zambia. How are you addressing the issues of high interest rate? Apartfrom the technical supports, are you also providing some credit guarantee fund to CETZAM?
Alison, Youreally said it
Defining the overlap and accountabilities between business, governments and donors is essential in order to build the successful and long term commitments we are discussing.
and then to take it from there, agreeing on joint goals, targets and action plan for each sector and participant
David, I fully agree and we too often think of agri smallholders in terms of export crops, but these producers are are major suppliers of basic food produce to domestic markets, so it is critical to ensure that experts on "nutrient value chains" are also incorportated.
I recall reading something last year, which I cannot now find. It concern coffee growers in Costa Rica, I think. Those that participated in fair-trade scheme benefitted to the tune of a few cents per pound of coffee supplied than if they operated outside of fairtrade. This seemed sound. However, in another instance, where the retailer buying the coffee from the grower helped fund development of their husbandry skills, the benefits they accrued from boosting yields (and in a green manner) was considerably more. This "catch a fish, feed a man for a day; teach a man to fish, feed him for life" approach needs to become more prevalent. As an ex-banker, the willingness to lend is far greater when there is greater confidence about improved cash-flow and thereby means to repay. So are we in our capacity as ultimate end users putting pressure on the retailers to change their procurement practices so that the farmers become more proficient. In so doing, the farmers can fund education for their families, which is the real driver of progression from poverty!