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Welcome to: What works for smallholders and agribusiness?
The Webinar will start shortly
Jessica Graf Hugh Scott Caroline Ashley
Join the discussion on Twitter #Smallholdersuccess
What works for smallholders and agribusiness?
Speakers: Jessica Graf: Network Partner, Hystra Hugh Scott: Director, African Enterprise Challenge Fund
Webinar Structure: Quiz & Insights on 5 topics Questions and discussion
Join the discussion on Twitter #Smallholdersuccess Type your questions in ‘chat’ anytime
2
The question this webinar seeks to answer: what works?
1 billion larger-scale
farmers
1.5 billion small-scale farmers
Equipment and input provision
Purchase of produce
Novelty of product
Unpredictable personal circumstances
Lack of cushion if harvest fails
Risk aversion
Lack of cash
Technical assistance
3
Many productivity-enhancing products and practices exist that could sustainably change the life of small-scale farmers
…but they struggle to reach widespread and consistent adoption
∂∂∂∂
∂∂
Empresa de Comerciali-zação Agricola (ECA)
4
Analysed 15 pioneer organizations working in 15+ commodities with 2 million small-scale farmers
The AECF’s has a large portfolio of agribusiness and related projects
Adapta(on7% 48 Inputsupply
21 Outgrower
46 Agro-processing
7 Distribu6onandmarke6ng
4 Financialservices
6 Informa0on
132 Agribusiness+related
$100m+ net benefit to 1.1m smallholders
Agribusiness 122
Information 6
Financial services
20
Renewable energy
30
Adaptation 30
2014
And now for the Quiz…
We want to hear from you too! Click on the link in the chat box >>>>
1. CAN BUSINESSES MAKE MONEY BY WORKING WITH SMALL FARMERS (as sellers or buyers)?
2. WHAT IS THE SINGLE BIGGEST LEVER TO INCREASE THE PROFITABILITY OF FARMERS?
3. WHY SOME PROJECTS STRUGGLE TO REACH HIGH PENETRATION?
4. HOW MUCH DO ORGANIZATIONS SPEND ON TRAINING FARMERS (as % of product bought from or input provider’s sales to farmers)?
5. WHAT ARE EFFECTIVE STRATEGIES TO DEAL WITH “DEFAULTERS”?
6
QUESTION 1: CAN BUSINESSES MAKE MONEY BY WORKING WITH SMALL FARMERS (as sellers or buyers)
a. No
b. Yes, but in a limited fashion
c. Yes, and often in significant ways
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Seller 3
Seller 2
Seller 1 3.3x
4x
The organizations working with small farmers also derive significant benefits
24%
20%
11%
2.5%
5%
2%
2.5%
Buyer 6
Buyer 5
Buyer 4
Buyer 3
Buyer 2
Buyer 1 Premium on selling price**
Better quality of produce***
Logistical gains
Additional net margins for buyers of produce* (as % of sales)
Increase in number of small-scale farmer clients for sellers of inputs/equipment
*On top of margins made at the processing plant or dairy hub level ** Premium on price of product sold (e.g. market premium fetched by the Kenya Tea Development Agency factories on Mombasa auction) 8
*** Better quality of produce collected from farmers, yielding higher returns in processing (e.g. JAIN onions have higher solid content)
5 x
The AECF’s agribusiness projects exhibit strong revenue growth
Average project revenue by sector by project age (all active projects, 2014 data)
0
1
2
3
4
5
6
7
Year 1 Year 2 Year 3 Year 4
US$
Mill
ions
Input supply
Outgrower
Agro-processing
Marketing and distribution
QUESTION 2: WHAT IS THE SINGLE BIGGEST LEVER TO INCREASE THE PROFITABILITY OF FARMERS?
a. Training on better agricultural practices
b. Provision of a new technology
c. Higher selling prices (from certification or value chain
disintermediation)
d. Savings (e.g. on inputs purchase)
10
Increase in farmers’ net income
Productivity-enhancing input and equipment
Market access / purchase
Technical assistance
✔ ✔ ✔
✔ ✔
✔ ✔ ✔
✔ ✔ ✔
✔ ✔ ✔
✔ ✔ ✔
✔ ✔
✔ ✔
(✔) ✔
✔
✔
✔ ✔
✔ ✔
✔ ✔
✔ ✔ 20%
25%
31%
35%
38%
41%
57%
60%
80%
91%
100%
120%
125%
125%
Project 15
Project 14
Project 13
Project 12
Project 11
Project 10
Project 9
Project 8
Project 7
Project 6
Project 5
Project 4
Project 3
Project 2
Project 1
Increase in production and productivity
Higher selling prices
Others (savings, dividends etc.)
Only projects that offer productivity-enhancing inputs or equipment manage to increase farmer income by more than 80%
140%
11
Extent of value chain integration
Input Supply
Agro-processing and marketing and distribution
Outgrower
Finance Information E.g. Shamba
Shape-up, 515k households $58 net benefit
Average net benefit ($/
farmer) per project
Average number of farmers benefitted per project (outreach)
5k 10k 15k 20k
$100
$200
QUESTION 3: WHY SOME PROJECTS STRUGGLE TO REACH HIGH PENETRATION?
a. Small farmers cannot afford to pay for expensive new
technologies/ inputs
b. Farmers believe that the gains they could make by
evolving their practices are not significant enough
c. Farmers are risk-averse yet not given any insurance/
guarantee against failure
d. Other
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Penetration rate (%) Original net yearly income and net increase as a result of intervention
(US$)
Cost of intervention to farmers in %
of additional revenues
Yet, it is neither the prospect of important gains nor the limited need for upfront investments that drive penetration
90%
70%
70%
65%
60%
25%
20%
15%
15%
15%
1%
Project 1
Project 2
Project 3
Project 4
Project 5
Project 6
Project 7
Project 8
Project 9
Project 10
Project 11 800
480
2,500
228
14,714
1,350
491
659
38
2,500
274
1,000
120
2,000
130
20,600
1,350
589
208
48
500
164
40%
0%
12%
42%
29%
27%
60%
26%
40%
23%
40%
*In some projects implemented by buyers, farmers may side-sell part of their production to other buyers, leading to a greater actual original net yearly income and net increase than reported here
Penetration Ability to quit project easily Guarantee / insurance
✔ ✔
✔
✔
✔ ✔
(✔) ✔
✔ 1%
15%
15%
20%
25%
65%
70%
70%
90%
Project 9
Project 8
Project 7
Project 6
Project 5
Project 4
Project 3
Project 2
Project 1
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Ability to easily quit drives penetration
QUESTION 4: HOW MUCH DO ORGANIZATIONS SPEND ON TRAINING FARMERS (as % of product bought from or input provider’s sales to farmers)?
a. More than 30%
b. Between 20 and 30%
c. Between 10 and 20%
d. Between 1 and 10%
17
Total yearly training cost* per farmer ($)
Number of training sessions per farmer
per month
Increase in productivity (% over previous situation)
2
0.5
2
2
2
0.2
0.2
2
4
Level and intensity of training provision do not correlate with farmers’ improved productivity
* Includes costs of deployment (e.g. transportation) and salaries of field staff (such as extension officers) spending a large part but not necessarily all of their time providing training and other technical support to farmers
50%
80%
80%
75%
20%
30%
15%
8%
35% Training + technology
Training only
9
19
20
20
50
67
125
150
570
Project 9
Project 8
Project 7
Project 6
Project 5
Project 4
Project 3
Project 2
Project 1
18
But when done well, training drives higher profits and incomes for both buyers and farmers
19
Providing technology and training
Providing only training
Additional net margin for buyers per $ spent in training
Additional farmer income per $ spent in training
$2
$2
$36
$11
$4
$- $2 $4 $6 $8 $10
Buyer 5
Buyer 4
Buyer 3
Buyer 2
Buyer 1
Premium on selling price
Better quality of produce
Logistical gains
$0,4
$4,4
$4,5 $4,5
$1,7
$8,2
QUESTION 5: WHAT ARE EFFECTIVE STRATEGIES TO DEAL WITH “DEFAULTERS”?
a. Offering more stable incomes
b. Increased transparency and convenience in transactions
c. Enforcing tough penalties
d. All of the above
20
! Transparent seasonal price bands give:
• Extra margin to Margarita if price is high
• Extra cushion to farmers if price is low
" Increased visibility allows farmers to invest for the long-term
Smoothing income over price variations
Sustainability premium turned into
a savings plan
! Certification premium originally paid during planting season
! As season ends, income is low, but investments needs are high (inputs, labor, school fees)
! Farmers requested that the premium be paid in a lump sum at season’s end
" Farmers value support in smoothing out their annual cash flow
22
Offering minimum prices (hence predictable income) or payments smoothened over time helps reduce side-selling
250
460
Mechanical weighing Digital weighing
Kilo of cocoa delivered per farmer Percentage of registered farmers delivering cocoa
72%
86%
Without transport of harvest
With transport of harvest
+84%
+19%
23
Convenience and transparency also are effective incentives to reduce side-selling
Credibility of threats insured by the fact that Margarita can easily source elsewhere
$
Loyal farmer’s wife
Farmer engaging in side-selling
! Own end-of-year bonus (2% of annual sales)
! Share of bonus of disloyal farmers
! Exclusion from program for life
! Loss of bonus for entire period
Side-selling: 0% Churn: 5%
24
Credible penalties can also be effective at improving loyalty
AECF
Key findings on impact
! If your target is numbers of HH benefiting then fund input supply companies, information and TA providers, and financial service providers
! If your target is benefit per HH then focus on out-grower schemes with full engagement.
! Pareto rule applies – 80% of impact coming from 20% of projects – can we identify them ex ante?
! Livestock projects – dairy and poultry particularly – have a greater impact per HH than crop projects (on average…)
! Have patience – to see the real impact of agribusiness projects you need time
! Impact correlates almost directly with revenue (EBITDA relationship takes longer to show)
! Jobs is becoming the focus of funders – need to calculate this differently
! Huge opportunity to learn from the AECF’s portfolio – we must not waste this opportunity – the 2014 Impact Report is just a start (we hope..)
26
The AECF: Seven years, seven million people
AECF
Key findings and questions on process
! Use a “last hard number” approach to keep impact verification costs down (revenue is the best last hard number)
! Country and topic based competitions offer greater potential for systemic impact
! Continent wide competitions can identify and support the most innovative ideas
! Aim to start races rather than pick winners ! Disruptive innovation (triggered by technology and/or business model) is key
! Use of different financial products (grants, loans, guarantees, equity) or just grants with a stronger Connect?
! Matching funds and leverage – not the same thing – which matters?
! Competitions to solve particular challenges?
27
The AECF: 8 different funds; 20 competitions; US$244m; over 200 projects in 25 countries;
The AECF 2014 Impact Report
Our report present how the AECF’s portfolio of 160+ projects across Africa is having a significant impact on the lives of rural poor people by addressing some of the continent’s most urgent development challenges.
Impact Report: http://bit.ly/1QFZvpy
Review: bit.ly/AECFEdChoice
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What other questions can you get answered in Hystra’s report?
# When entering a new area, which type of farmers invest into first?
# What player is best positioned to pay for farmers’ training in complex supply chains?
# How can ICT change the cost and impact game?
# To efficiently and effectively reach out to a large number of farmers, what is best: Working with farmers’ groups or through intermediaries?
# What proportion of projects have the farmers loyal and committed and why?
# What drives farmers to leave an intervention aiming at making them more productive?
# Do cooperatives actually manage to make farmers richer?
# What proportion of the fair trade premium arrives to farmers?
# How to develop long-term, win-win arrangements with farmers?
Full report available on www.hystra.com Contact: Jessica Graf, jgraf@hystra.com
Review: bit.ly/HystraEdChoice
Thanks to our speakers for some evidence and answers…
Evidence of benefits to both farmers and business
What works for smallholders? ! productivity-increasing technology ! value chain integration
! Returns on training
! Strategies to increase adoption in the face of risk
! Strategies to reduce default
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Discussion
Visit the webinar page for details and resources: http://bit.ly/Smallholder
Join the discussion on Twitter #Smallholdersuccess
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