A Guide to Strengthening Business Development Services in Rural Areas

Home , Business development

Rupert Best, Shaun Ferris and Chris Wheatley, editors

A Guide to Strengthening Business Development Services in Rural Areas

Rupert Best, Shaun Ferris and Chris Wheatley, editors

i Catholic Relief Services, 228 West Lexington Street, Baltimore, MD 21201-3413 USA

Illustrations: Jorge Enrique Gutiérrez

Printed in the United States of America.

ISBN-10: 1-61492-157-1

ISBN-13: 978-1-61492-157-8

Download this publication and related material at http://www.crs.org/our-work-overseas/research-publications/

ii Contents

Abbreviations vi

Preface vii

Acknowledgements viii

Introduction 1

Part 1: A Guide to Strengthening Business Development Services in Rural Areas 3

Chapter 1. Theory and Practice of Business Development Services 4 Trends in agricultural development 4 Farmer segmentation 10 Conclusions from these trends 10

Chapter 2. What Are Business Development Services? 12 Delivery models for business development services 13 Who provides business development services 14 Who pays for business development services 15 Delivering business development services 16 The mobile revolution 20

Chapter 3. How to Improve Business Development Services for Smallholders 21 Priority setting and planning 21 Implementing the action plan 26 Monitoring, evaluation and learning 29

Part 2: Case Studies 32

1.1 A Local Business Development Services Fund to Improve Agro-Enterprise Support Services 34

1.2 Catalyzing Smallholder Inclusion in Value Chains through Agribusiness Development Centers 39

2.1 Connecting African Farmers to Seed Enterprises with Vouchers and Fairs 43

2.2 Development of Agricultural Input Dealers in Rural Uganda 46

2.3 Building Second-Generation Market Information Systems 50

2.4 Agricultural Extension Services in Africa 56

3.1 The Role of the Development Facilitator in Building the Capacity of Smallholder Farmers to Link with Modern Markets: Calamansi Growers in the Philippines 62

3.2 Kenya Dairy Sector Competitiveness Program: A New Business Model for Kenya’s Dairy Industry 68

iii 3.3 Private Provision of Market Linkage Services for High-Value Crops 72

4.1 Enabling Informal Farmers to Access Formal Markets 77

4.2 Social Intermediaries for Market Access: The Case of the Cuatro Pinos Cooperative in Guatemala 81

5.1 How Savings-Led Microfinance Has Improved Chickpea Marketing in the Lake Zone of Tanzania 86

5.2 Facilitating Financial Linkages for Smallholder Producers in Nicaragua 91

5.3 Establishing a Warehouse Receipts Program: The Experience of the Eastern Africa Grain Council 95

5.4 Inventory Credit Improves Farmers’ Incomes and Food Security in Niger 100

Annex 1. New Business Model Components 105

Annex 2. About the Partners 107

Annex 3. About the Donors 109

References 111

iv List of Figures Figure 1. An abbreviated evolution of agricultural development strategies. 4 Figure 2. The three market dimensions of a value chain. 7 Figure 3. Farmer segments. 10 Figure 4. Strong government or public sector dominating service provision. 16 Figure 5. Public sector facilitation of private sector service provision. 17 Figure 6. Market access frontier. 19 Figure 1. Yield gap for cereals between sub-Saharan Africa and other regions. 57 Figure 2. Extension model based on Australian, public–private sector arrangement for financing and management. 60

List of Tables Table 1. Scope and scale of market information systems in Uganda. 53 Table 2. Typology of agricultural extension service providers, clients and their roles in Uganda. 57 Table 3. One-off costs charged by warehouses to depositors. 97 Table 4. Monthly costs charged by warehouses to depositors. 97

List of Boxes Box 1. What do we mean by market chains, actors and value chains? 6 Box 2. Categories of business development services. 12 Box 3. Types of support services provided to the agri-food sector by category. 13 Box 4. Sample checklist of questions for investigating service demand. 23 Box 5. Sample checklist of questions for investigating service supply. 24

v Abbreviations

ACORDAR Alliance to Create Rural Business GTZ Deutsche Gesellschaft für Opportunities through Agro- Technische Zusammenarbeit Enterprise Relationships IDEA Uganda Investment in Developing ACOS Agricultural Commodity Supplies Export Agriculture project AMA Agribusiness Management KDSCP Kenya Dairy Sector Associates Competitiveness Program BDS business development services MFI microfinance institution CIAT International Center for Tropical MIS Market information systems Agriculture MT metric ton CIPASLA Inter-institutional Consortium for NAADS National Agricultural Advisory Sustainable Agriculture Service CLODEST Comité Local para el Desarrollo NARO National Agricultural Research Sostenible de la Cuenca del Río Organization Tascalapa NGO nongovernmental organization CLUSA Cooperative League of the USA NZAID New Zealand Aid Programme CRS Catholic Relief Services QMS quality management system DOST Department of Science and RATIN Regional Agricultural Trade Technology Intelligence Network DSD direct seed distribution SIGA SILC Group Association FAO Food and Agriculture Organization SILC Savings and Internal Lending of the United Nations Communities FASSLA Local Agro-Enterprise Support UCAA Uganda Change Agent Association Services Fund UNADA Uganda National Agro-Input FRR Fineline Rural Reach Ltd. Dealers Association GDP gross domestic product

vi Preface

his guide is focused on how business and participatory. Its preparation has been a development services can increase the collaborative effort based on experiences and T sustainability of smallholder agro- lessons learned from designing and implementing enterprises in rural communities. By exploring agro-enterprise and marketing projects in Latin theoretical frameworks and highlighting America, Africa and Asia. practical applications, the guide demonstrates how a variety of support services not only Titles in the agro-enterprise “good practice guide” improve the performance of individual producer series include: organizations and agro-enterprises, but how they A Participatory Guide to Developing also strengthen entire agricultural sub-sectors •• Partnerships, Area Resource Assessment and and market chains and fuel new employment Planning Together opportunities in rural areas. •• Identifying Market Opportunities for Rural The guide explains the evolution of concepts and Smallholder Producers approaches to providing support for businesses •• A Guide to Participatory Market Chain in rural areas. It outlines methods for identifying Analysis for Smallholder Producers existing rural business services, recognizing gaps •• A Guide to Strengthening Business and unmet needs, and strengthening service Development Services in Rural Areas provision. In addition to the theory of business development services, Part 2 of the guide includes 15 case studies of real-life interventions to Supplemental guides improve business service delivery. •• A Market Facilitator’s Guide to Participatory Agro-enterprise Development The aim of this guide is to equip new and existing •• Advice Manual for the Organisation of service providers with a set of methods and Collective Marketing Activities by Small- tools to help smallholder producers engage more Scale Farmers effectively in local, regional and global markets. •• A Guide to Rapid Market Appraisal for By doing so, smallholder farmers may enhance Agricultural Products their capacity to innovate and compete, increase their household income and ultimately improve These guides can be downloaded from their livelihoods. http://www.crs.org/our-work-overseas/research- publications/. This guide is part of a series of agro-enterprise publications developed in a long collaboration The guides are intended for use by the staff of between Catholic Relief Services and the Rural development organizations that wish to adopt a Agro-enterprise Development project of the market-and enterprise-oriented approach to rural International Center for Tropical Agriculture and agricultural development. They can serve as and their partners. The series is grounded on a basis for training field agents and developing the area-based (territorial) approach to rural staff capacity to facilitate enterprise development agro-enterprise development, which supports efforts involving rural communities and local local communities to engage with competitive service providers. market chains that are equitable, pro-gender

vii Acknowledgements

atholic Relief Services and the We also give special thanks to the Canadian International Center for Tropical International Development Agency, the C Agriculture would like to thank the many Belgian Directorate-Generale for Development partner institutions, farmer groups, traders and Cooperation, the U.S. Agency for International particularly the market facilitators that have Development and the U.K. Department for worked with CIAT and CRS teams since 1998 and International Development for their logistic and contributed to the development of this guide. financial support over many years, which has enabled partners to learn, discover and create Particular thanks go to agencies and authors this body of knowledge. who developed the case studies to share their experiences working with business development Technical and language editing of this document services to support, accelerate and sustain was done by Chris Wheatley and Matthew Foerster. competitive rural agro-enterprises. A special word of thanks goes to Jorge Enrique Gutiérrez for his pencil drawings.

viii Introduction

mproving smallholder agriculture is a critical taking a more systems-based perspective. While strategy for addressing rural poverty in this approach has been more successful than I developing countries. More recently, it is methods that focus only on production, there are seen as a relatively untapped source of potential still concerns and questions about the resilience production for the global food system—a system of a new agro-enterprise once a project ends. that must grow by at least 70 percent within the In many cases, facilitators support farmers and next 35 years to meet increasing demand while producer organizations by offering free services or also adapting to the effects of climate change and services at heavily subsidized rates. The problem the decreasing availability of resources. with this approach is that when a project ends and withdraws external financial support, the Working with rural communities to design and agro-enterprises are either unable to access implement new income-generating agricultural essential services or unable to pay for them. enterprises is complex; it takes time and dedication to be successful and sustainable. For Despite the sophistication of the modern food system development organizations, the agro-enterprise and global marketplace, a billion people in poor rural approach offers a method to address rural communities regularly face the threat of hunger. poverty and an opportunity to stimulate demand In many cases, rural families struggle to meet their for technical and social innovations. It also helps basic needs and must make choices whether to identify areas that require support from research, buy food and medicine or educate their children. finance and local policy. The agro-enterprise To address these and other real and immediate approach can provide a win-win situation for problems of poverty, virtually all rural development development organizations in achieving their projects now include a strong emphasis on helping goals to improve rural livelihoods. rural families raise their incomes.

Any income-generating activity, however small, Purpose of the guide should be considered a business, and there are principles that can be followed to identify Traditionally, agricultural support to smallholder a marketable opportunity and work toward farming has focused on increasing production. establishing this venture. This guide does not This approach works well if the primary concern provide ideas on the core business approach, as is food security and if a ready buyer is available those aspects were covered in previous guides. to purchase any surpluses. Unfortunately, This guide focuses on the variety of business increasing supply often works for a limited development services that foster agricultural period only, with local markets becoming quickly entrepreneurship among smallholder farmers in oversupplied as production increases. Following developing countries and help make competitive the laws of supply and demand, rapid oversupply agro-enterprises more sustainable. in the market leads to rapidly falling prices and, in the long run, reduced income for farmers. This guide seeks to help rural development organizations promote and adopt market-oriented In other words, instead of producing what the approaches to agricultural development. It market wants, farmers and their facilitators focuses on providing rural business development often expend energy on finding markets for what services that agro-enterprises need to increase is already produced. Commercial viability and and maintain their competitiveness and achieve marketability become afterthoughts. This lack of sustainable growth. attention frequently results in farmers ending up with unwanted produce that they are forced to sell at very low prices. Who should use the guide However, in the past decade there has been This guide, along with the broader set of agro- greater focus on a value chain approach that enterprise guides, is intended for use by any helps integrate farmers into the marketplace by institution interested in building staff capacity

1 A Guide to Strengthening Business Development Services in Rural Areas to facilitate rural agro-enterprise development. •• Chapter 1 looks at how approaches to rural The set of guides focuses on how market development and agriculture have changed facilitators can help local development agents, over the past 30 years. farmer groups, traders and support services work •• Chapter 2 explains what business together to: development services are, why they are important, who provides them and how they •• Organize partners to work together within a are delivered. defined area or territory. •• Chapter 3 guides the reader through •• Assess market opportunities and select the three-stage business support service appropriate enterprises for development. improvement process, including methods for: •• Analyze entire value chains, and identify •• Conducting diagnostic studies to interventions and business planning methods understand the current situation of to improve competitiveness. service supply and demand. •• Strengthen critical support services needed •• Strengthening existing services or for enterprises to increase sales, reduce costs, creating new services. manage risks and diversify production. •• Monitoring and evaluating the new or improved services.

How to use the guide Part 2 presents 15 case studies in which services While this guide has been written as a stand- have been created or strengthened in rural areas alone document, it is recommended that market in response to the needs of smallholder farmers facilitators read the preceding guides in their and their organizations. Drawn from projects entirety to absorb the ideas and concepts prior to around the world, these case studies: planning and initiating field interventions. Our experience has shown that best results are attained •• Explain what approach or service is featured when agro-enterprise development processes are in the case study, why it is important, and not implemented in a mechanical manner; rather, what is innovative about the project or what the principles are interpreted and adapted to makes it different from other approaches. local conditions based on the prevailing market •• Describe what was done, how it was done, by environment, available resources, anticipated scale whom it was done and where it was done, and how and time frame of the intervention. much it costs to deliver the services provided. •• Outline the outcomes of the intervention and the challenges faced, provide information on What this guide includes what worked well and why, and describe the constraints and/or challenges encountered The guide is divided into two parts. and how they were addressed. Highlight best practices and insights for future Part 1 is made up of three chapters that take the •• interventions, with particular emphasis on the reader from the theory and concepts surrounding the potential for adaptation, replication and scale- provision of business development services in rural up, and the likelihood of long-term success areas to the practical implementation of interventions and sustainability of the service provided. to strengthen or create services that support smallholder farmers and link them to markets.

2 Part 1: A Guide to Strengthening Business Development Services in Rural Areas

Chapter 1. Theory and Practice of Business Development Services Rupert Best and Shaun Ferris

Focus on production Focus on value chain Focus on business development Farmer with advisor and lots of Farmer with two advisors—one services production but no market for production and one for Farmer surrounded by an marketing ecosystem of support services

Figure 1. An abbreviated evolution of agricultural development strategies.

Trends in agricultural development For this reason, economic development is often synonymous with agricultural development. The Over the past 40 years there have been a number following section briefly summarizes four periods of well-intentioned interventions to support the of agricultural development. growth and development of rural communities. Subject to equal parts criticism and praise, these The Green Revolution: approaches have shifted over time and evolved From hunger to poverty reduction with broader changes in economic, political, social and technological landscapes. In the colonial period, investments in the agricultural sectors of developing countries Today, most development organizations agree focused on export commodities. Limited attention on the powerful role that markets can play in was given to upgrading the production of alleviating poverty, and nowhere is this more staple food crops for domestic consumption apparent than in the agriculture sector. For the or to improving the livelihoods of indigenous estimated 1.4 billion rural people worldwide who smallholder farmers. However, rapid population live on less than US$1.25 per day, there is a growth in the post-World War II period put broad consensus that an improved agriculture increasing pressure on the local food systems. sector remains the best opportunity to lift them out of poverty. The 2008 World Development In the 1960s, concerted international action Report observed that GDP growth originating in was required to confront the threat of major agriculture is about four times more effective in famines and address chronic food insecurity, reducing poverty than GDP growth in other sectors particularly in Asia, where population size had (World Bank, 2007). At a macro level, agriculture outstripped the traditional food supply systems. contributes significantly to GDP, provides valuable Large-scale public investment in infrastructure foreign exchange earnings and often accounts for plus support for new production technologies a majority of employment opportunities, especially contributed to unprecedented increases in for women, in many parts of the developing world. worldwide agricultural production. Discoveries of

4 A Guide to Strengthening Business Development Services in Rural Areas high-yielding varieties of staple crops, expansion •• The removal of subsidies on agricultural of irrigation technologies, modernization of farm inputs, such as fertilizer, agrochemicals and management practices, and the availability of seed, effectively eliminated access to these synthetic fertilizers and pesticides collectively inputs for the smallholder community. led to what is commonly known as the Green •• The closure of state-run marketing boards, Revolution. The success of the Green Revolution which purchased agricultural products on a in Asia led to a world view that food security national level at controlled prices, severely solutions were available and only required reduced market access for millions of replication in other locations such as Africa to smallholder farmers. achieve global food security. •• The privatization or scaling back of publicly funded agricultural research and extension Integrated rural development programs services effectively removed access to Taming hunger proved to be a continuing technology and training for smallholder challenge. In the 1970s, priorities shifted farmers in poor countries, which led to away from Asia as the global development massive knowledge gaps in farming practices community focused its efforts on hunger and that persist decades later. social challenges presented by rural poverty in •• Countries were no longer able to sell their Africa and parts of Latin America. Championed traditionally produced export goods based on an by the World Bank and other multilateral agreed global quota system and had to compete donor agencies, many countries initiated in the global marketplace to sell their products. Integrated Rural Development programs. These Within a relatively short time frame, smallholder programs aimed to deliver multisector support, farmers across the developing world and with the provision of inputs, credit and rural particularly in Africa faced a completely new infrastructure to increase both the production liberalized marketplace with virtually no support and profitability of the agriculture sector. measures. Services for smallholder agriculture Given the lack of social services in many target declined and the private sector was unable to fill areas, Integrated Rural Development programs the gaps left by the retrenchment of the public included improvements in public services, such sector. Agriculture lost favor for donors at the as education and health. The performance and end of the twentieth century and rates of poverty outcomes of the programs were mixed, and the increased, as did overall land degradation in approach was criticized for being too complex, countries that were highly dependent on rain-fed, top-down and lacking community ownership. low-input agriculture. The smallholder farmers Market reforms and the rise of structural and local trading networks were essentially left to fend for themselves and many millions of people adjustment programs living in rural areas have spent the past 20 to In the mid-1980s, disillusionment with Integrated 30 years trying to rebuild their production and Rural Development programs coincided with the marketing systems. rise of structural adjustment programs, which radically changed the conditions for countries Where we are today: Market-based receiving loans from the World Bank and the approaches for agricultural development International Monetary Fund. These reforms Today, with a growing global population and a were quickly followed by the dissolution of global focus on the rural poor, smallholder farmers commodity agreements and increased market are back in the spotlight, and investment liberalization ushered in by the increasingly in agriculture has regained its position as active World Trade Organization. Collectively, a powerful force for economic growth and these policies had the following effects: poverty reduction. The 2007–2008 and 2011 •• Developing countries were forced to open food price crises played a major role in putting their markets to import agricultural products agriculture firmly back on the development that could be produced more inexpensively agenda. Because most smallholder farmers are elsewhere. This sparked direct competition actually net food buyers—with some households with domestically produced crop and livestock spending more than 60 percent of their income products and jeopardized the livelihoods of on food—these price shocks highlighted the fact millions of producers. that food affordability is just as important as food availability.

5 A Guide to Strengthening Business Development Services in Rural Areas

Developing-country governments have also schemes. Most recently, impact investors are started to make agriculture a higher priority. exploring ways to co-invest in the agricultural Organizations such as the New Partnership sector as a means to support social change and for Africa’s Development, Alliance for a Green generate a return, albeit lower than a commercial Revolution in Africa, the World Economic return on investment. Forum’s New Vision for Agriculture, and Grow Africa initiatives have invested in smallholder Building on this momentum, several frameworks production. New institutional funders, such for market-based approaches to rural as the Bill & Melinda Gates Foundation, Ford development have emerged over the past few Foundation and the Rockefeller Foundation, years, including the following: have contributed millions to researching The sustainable rural livelihoods approach. agricultural technology and developing and •• One of the most influential frameworks strengthening markets. used for rural development has been the New approaches to agricultural development have sustainable rural livelihoods approach also more fully engaged the private sector. For created and promoted by the U.K. Department example, food companies such as Mars, Nestlé, for International Development. Marking a Ben & Jerry’s and Unilever are making strategic clear departure from the top-down nature investments in obtaining goods from smallholders of previous development strategies, the to ensure a sustainable and diverse supply. After aim of the approach is to be responsive to years of neglect, commercial banks in developing people’s own interpretation of and priorities countries are beginning to lend to agricultural for their livelihoods. The approach explicitly enterprises. Throughout sub-Saharan Africa, incorporates environmental conservation as venture capital and private equity firms are also an integral part of achieving a sustainable seeing agriculture as an increasingly important livelihood. Several organizations developed sector for investment. Similarly, commodity strategies based on this work, including the traders and commercial buyers have shown a Integral Human Development conceptual growing interest in providing direct support and framework designed by CRS in 2003. credit to producer groups using methods such •• Territorial approach to rural agro-enterprise as contract farming and establishing out-grower development. Increasing concern for the environment has prompted international

Box 1.

What do we mean by market chains, actors and value chains?

Market chain: A set of linkages between actors with no binding or sought-after formal or informal relationships, except when goods, services and financial agreements are purchased or sold. Market chains are also referred to as supply chains.

Actors: The various individuals, companies, organizations and associations within a market chain or value chain that are involved in producing, transporting, processing, trading or consuming a particular product. Depending on their position along the chain, other “upstream” and “downstream” actors seek to capture market share, increase profit margins and deliver maximum value for the least possible cost.

Value chain: A specific type of supply chain in which actors support each other so they can increase their overall efficiency and competitiveness. Value chain actors invest time, effort and financial resources, and build relationships of trust with other actors to reach a common goal of satisfying consumer needs and increasing profits.

Value chain approach: A set of market-oriented principles and tools designed to address the major constraints and opportunities faced by farmers, local collectors, processors, wholesalers, retailers and other businesses at multiple levels and points along a given value chain.

6 A Guide to Strengthening Business Development Services in Rural Areas

organizations and development finance an enterprise using this approach include an institutions to realign their portfolios to accessible market, potential for profit and the support methods that combine productivity ability of smallholder farmers to produce a gains, social support and natural resource product without damaging the environment. management when investing in farmer •• The value chain approach. Value chain livelihoods. For instance, the International approaches aim to link informal small-scale Center for Agricultural Research developed the producers to more formal markets at the local, territorial approach to rural agro-enterprise regional and export market levels. The value development, the components of which are chain approach takes a systems perspective presented in the guides that precede this one. with each project focusing on a single product This approach advocates local development or sub-sector. For the world’s estimated 500 institutions and private services within a million smallholder farmers, participation defined geographic area to help farmers in formal agricultural value chains brings establish and build agro-enterprises that opportunities for increased income. However, are economically viable and environmentally connecting small-scale producers to more sound. The three essential criteria for selecting formal and global markets is not simple. Formal

Figure 2. The three market dimensions of a value chain.

7 A Guide to Strengthening Business Development Services in Rural Areas

markets have increasingly strict requirements— importance of which is frequently overlooked, including quality, food safety, consistency plays a critical role in the functioning of and traceability—and often demand third- markets and the ability of agro-enterprises to party certified standards that require regular successfully participate in them. communication and coordination along the value chain. The progressive ability of farmers to strengthen their linkages to markets and participate in more As depicted in Figure 2, value chain approaches to formal value chains depends on a variety of ever- development feature three distinct dimensions that changing factors, including: must be understood and analyzed when working with smallholder farmers in developing countries: •• The skills, resources and assets to produce agricultural crops and livestock that meet •• Core market chain activities include the certain quality requirements, or specifications principle actors, such as farmers, processors and volume demands in a profitable and and traders, who perform the functions required environmentally sustainable way. to produce and market an agricultural product. •• Access to services that support their growth After production, each actor physically sells and the growth of other enterprises along or buys the product, and the functions they the chain. perform are considered a business enterprise. •• Continual reinforcement of trust, In this first dimension, the number of actors communication and commitment between the can range from 2 or 3 to 10 or 15 separate farmers and other actors along the chain, often entities spanning multiple transactions. A value referred to as trading relationships. chain can be local—when farmers sell to nearby •• Modification or removal of onerous policies, traders and retailers—but with modern market tariff and non-tariff barriers, and other chain management, many value chains span obstacles that impede commercial transactions. countries and continents. •• Key business development services With the adoption of value chain approaches support the core market chain actors and has come the need to upgrade the capacities the commercial functions they carry out. The of development organizations, by retraining or types of services that a business needs include employing new staff with business and financial market access support (e.g., identification of skills. One of the most significant outcomes markets, facilitation of relationships, contract of incorporating a value chain approach in negotiation), infrastructure (e.g., transport, agricultural development programs is the communication, warehousing), training, acceptance of business terminology and practices. technology, input supplies and finance. For example, producer groups may need advice Making markets work for the poor and assistance in becoming organic or Fair As previously outlined, value chains can be Trade certified, they may require working divided into three main dimensions: core capital at the start of the harvest season to pay activities, support services and regulation. Rooted farmers in advance, or they may need to build in the fact that market systems exist even in the silos for storage or facilities for processing poorest, most challenging environments, Making and packaging. Business development services Markets Work for the Poor (M4P) is a facilitative are essential for helping the core chain actors approach to poverty reduction. It seeks to build and grow their businesses and are understand exactly which dimensions are failing often critical in driving competitiveness and to benefit the poor and identifies actions that can sustainability of actors within value chains. strengthen the pro-poor functioning of markets •• Key institutions and rules of the game are (U.K. Department for International Development, the formal and informal policies, standards 2000). M4P considers these questions both overall and regulations that govern how the core and in relation to specific markets for finance, actors and business service providers labor, land and raw materials, including food. The conduct their businesses and deliver their M4P approach places particular attention on the products or services. Often, these rules are need to strengthen support services to build more applied through public sector agencies, durable market linkages for smallholder farmers. such as ministries of finance, ministries It differentiates itself from other approaches in its of agriculture, tax authorities or customs concern with large-scale and sustainable change. officials. This enabling environment, the From the outset of any M4P intervention, two critical questions are posed:

8 A Guide to Strengthening Business Development Services in Rural Areas

•• How will the resources invested promote large- Relationships project, and Oxfam have identified scale change? Large-scale change refers to several principles that underpin sustainable trading change beyond a discrete number of partners relationships and ensure value creation for both and actors in a value chain project. corporations and smallholder farmers (Annex 1): •• How will goods and services continue to be offered and consumed beyond the period of •• Chain-wide collaboration an intervention? This question aims to focus •• Market linkages greater attention on the sustainability of an •• Chain governance investment project or program and on the •• Equitable access to services long-term market access of smallholders after •• Inclusive innovation a project ends. •• Measurement of outcomes

New business models for building A third-party facilitator who understands the separate worlds of commerce and development can sustainable trading relationships play an essential role in supporting the creation As formal markets expand through globalization of new and sustainable trading relationships. This and major companies extend their sourcing type of facilitation aims to bring value chain actors reach into local farming communities, there has together, offering safe spaces where partners been a rise in opportunities for smallholders can learn about each other’s challenges, share to become suppliers of large corporate buyers. experiences and consider new ways of improving This association can be through direct sales their individual businesses while supporting or through aggregators or intermediaries who overall chain-wide efficiency. sell into the formal system. In the context of increasingly globalized markets, smallholder Creating a bridge between the worlds of coffee farmers in Rwanda or cocoa cooperatives in informal and modern trading offers smallholder Ghana, for example, can now access and compete farmers the potential for more stable and on an entirely new level. profitable income. However, smallholders will only be successful in these markets if Global brands such as Unilever, Danone and they can consistently meet the higher-quality Nestlé and global trading companies are exploring requirements, volumes and competitive nature of ways to develop market chain partnerships the formal marketplace. Case studies by Bright that integrate smallholders into their global et al., (2010) have shown that three kinds of supply chains. While the motivation differs investments increase the chances of reaching from company to company and is often product poorer producers and improving the possibility of specific, in general the business case is a creating durable and beneficial trade: combination of firms that want to (1) create story- based products to reach the growing “ethical •• Adapting the trading relationships through the consumer market,” (2) seek ways to gain greater supply chain to fit the unique needs of small- legitimacy in domestic markets in developing scale producers countries and (3) develop new and diverse sources •• Public co-investment in infrastructure of supply to reduce buying risks and secure and the management capacity of producer future growth in supply. organizations as well as introducing technology options to enable farmers to meet Challenges with supply availability, consistency ever more stringent market requirements and and quality when working with smallholder food safety regulations farmers increase the importance of partnership •• Changing, where necessary, the procurement and co-investment to ensure that the trade is policies, communications, strategy and culture well structured and that producers are capable of of the lead firm to support the new trading reaching market specifications. When successful, relationships and maximize value such partnerships can reduce risks for all parties and gradually build mutual trust. This process of inclusive, chain-wide dialogue is increasingly Farmer segmentation visible in the growing number of sustainability The term rural development spans a wide range certification programs, such as Rainforest of programming, from emergency response Alliance, Fair Trade and UTZ. to commercialization support for farming The Sustainable Food Lab, through its New communities, and the needs of the world’s Business Models for Sustainable Trading estimated 450 million smallholder farmers are

9 A Guide to Strengthening Business Development Services in Rural Areas

Figure 3. Farmer segments. Source: Jayne, T. S., Mason, N. M., Myers, R. J., Ferris, J. N., Mather, D. Beaver, M., …Boughton, D. (2010) Patterns and trends in food staples markets in eastern and southern Africa. MSU International Development Working Paper No. 104. East Lansing: Michigan State University. diverse. Although defining and differentiating 30 to 50 percent of farmers as net buyers. For smallholders is challenging, there has been development programming to be effective in increasing interest in moving beyond general terms of return on investment, it is important to poverty thresholds to more accurately offer different types of support to the different classifying smallholders and delivering more segments of farmers to increase productivity and tailored interventions. improve profitability. They also need different types of business development services. When seeking to capture the diversity of smallholder farmers through segmentation exercises, there is no one-size-fits-all approach. Conclusions from these trends In general, smallholder farmers can be What are the key lessons we can take away from categorized on the basis of (1) the agro-ecological previous rural and agricultural development zones in which they operate, (2) wealth category, programs, the Green Revolution’s attention to (3) landholding, (4) type and composition of their production, and today’s focus on markets, finance farm portfolio or (5) annual revenue generated and value chains? from farming activities.

Similarly, the Consultative Group to Assist the Market access and economic growth are Poor offers three distinct segments of households essential to eliminating poverty dependent on agriculture based on their level of •• Smallholder farmers and other rural commercialization: non-commercial smallholders, community members can contribute to commercial smallholders in loosely organized economic growth by producing goods and value chains and commercial smallholders services, employing labor and as consumers of in tightly organized value chains (Christen & other goods and services. Anderson, 2013). •• Agriculture is an engine for rural growth, and investment in agriculture has strong multiplier Figure 3 shows a segmentation of maize farmers effects. However, if market access is limited, the based on studies of farmers in eastern and rural poor are unable to contribute to economic southern Africa. According to this analysis, growth, which leads to rural stagnation. there is an extreme range of commercial activity, •• Effective government roles are to foster a policy with only 1 to 2 percent of farmers producing and regulatory environment that supports more than 50 percent of the traded maize, and agro-enterprise, provide basic research and

10 A Guide to Strengthening Business Development Services in Rural Areas

extension services to raise productivity, and financial resources, control costs, negotiate provide basic infrastructure that will increase sales with buyers and achieve profitably. smallholders’ access to markets. •• Organizations that foster market-based interventions can positively influence Improving market access for smallholders successful enterprise development. However, to can be achieved through two approaches: be their own effective change agents in market area based and commodity based development, smallholder farmers must understand finance, how markets work, where •• Improving the livelihood of specific enterprise opportunities exist, how businesses communities requires approaches that use and are started and how they grow, and the risks build on the physical and economic resources involved in such investments. For these that are found within a defined geographic reasons, training is key. area or territory. Value chain approaches are commodity specific •• Sustainability is fostered through stronger and not necessarily limited to any particular area or region. business development services •• These approaches are complementary and •• Business development services enable farmers overlapping. Ideally, area-based programs to access the necessary support to grow should provide the enabling environment their agro-enterprises when project-based and promote appropriate services that make investment is withdrawn or scaled back. it possible for smallholder farmers to engage •• This guide is part of a series aimed to help with one or more value chains. staff within organizations that seek to link smallholder farmers to markets. This Farmer segmentation and market access particular guide focuses on understanding •• Not all farmers are the same; farmers can be how business development services can segmented by their assets, land area, location assist individual farmers as well as small- (including access to water and distance from and medium-sized enterprises to operate roads, markets), level of organization and level more efficiently. This guide will also support of agricultural commercialization. project managers and field agents in designing •• By recognizing smallholder farmer segments activities to identify and strengthen business and understanding their needs, rural development services. investment programs can help link farmers •• The fundamental point of this publication is to to appropriate types of markets or service underline the idea of business sustainability. providers. For example, in Colombia and A major outcome of many agricultural projects Honduras, we learned that the greatest unmet is that project staff provide farmers with free demand among farmers was training in post- or low-cost services that help to foster a farm harvest management (Case Study 1.1). In enterprise. While this approach may boost other countries, we found that connecting poor production and income in the short term, women farmers to markets was significantly withdrawal of support services generally leads improved when the first step in the to failure of the enterprise in the long term. development process was to gain financial and •• For smallholder farmers to build more resilient management skills within a savings groups farming enterprises, it is necessary to not before selecting a product and working on only identify and support the development of value chain support. agricultural business opportunities, but also to foster the support services that enable them Smallholders need business skills to to flourish. engage with markets •• Smallholders must be able to identify enterprise opportunities, access and manage

11 A Guide to Strengthening Business Development Services in Rural Areas

Chapter 2. What Are Business Development Services? Rupert Best and Shaun Ferris

usiness development services refer to •• Innovate, produce and market a all financial and non-financial support particular product. B that an individual farmer or a small- or •• Increase access to markets, revenue, medium-sized agricultural enterprise needs to: profitability and productivity. •• Forecast, manage and mitigate risks. •• Add value to or diversify production.

Box 2.

Categories of business development services.

Service Category Description Technology Technology and product development services support research and identify new and and product innovative ways to produce, process and market agricultural products. This includes development new mobile information systems and improved, drought-resistant seed, for example. Training and technical assistance services develop the capacity of farmers and Training and enterprises to better plan and manage their operations and improve their technical technical expertise—from accounting to agronomy. Providers develop and offer sustainable assistance training and technical assistance that producers are willing to pay for, and they foster linkages between other service providers and enterprises. Input supply services help farmers improve their access to and use of raw materials and production inputs, such as seeds, fertilizer, agro-chemicals and tools. They facilitate Input supply linkages between farmers and suppliers, and enable suppliers to both expand their outreach to farmers and develop their own capacity to offer better, less expensive inputs. Financial service providers offer credit to smallholder farmers, producer organizations and agro-entrepreneurs, usually in the form of loans. Providers can be considered “formal” (e.g., commercial banks, microfinance institutions and social lenders) or Finance “informal” (e.g., savings and loan cooperatives, moneylenders). Other services help producers identify and access funds, for example, helping enterprises prepare loan applications or business plans. Financial services can also include supplier or buyer credits, warehouse financing, equity financing and venture or private equity capital. Market access services identify and establish new markets for smallholders and agro- enterprises. They facilitate the creation of linkages between all actors in a given market Market access and enable buyers to expand their outreach to and purchases from rural producers. They also help entrepreneurs develop new value-added products and meet buyer specifications. Infrastructure services establish sustainable infrastructure and distribution networks that enable producers to increase production, sales and profitability. Examples include Infrastructure irrigation, refrigeration and storage, processing facilities, transport systems, loading equipment, communication centers, improved ports, and expanded road and rail routes. Policy and advocacy service providers conduct research and analysis to improve overall terms of trade, strengthen sectoral governance and correct any power imbalances. These Policy and service providers also identify and seek to reform policies and regulations that constrain advocacy smallholder farmers and agro-enterprises, and they facilitate the organization of businesses, donors, government officials and academics around inclusive, pro-poor policies.

12 A Guide to Strengthening Business Development Services in Rural Areas

Services commonly provided fall into seven are general business support services that are categories: technology and product development, not unique to a sub-sector or crop. Similarly, a training and technical assistance, input supply, vegetable farmer and a livestock farmer could finance, market access, infrastructure, and policy use their mobile phones to check the prices of and advocacy (Box 2). their products in local markets. They obviously depend on a business to provide them with Adapted from: Miehlbradt, A. O. & M. McVay. (2003). comprehensive, accurate and timely market Seminar Reader. Business development services: information, and that business is most likely Testing the guiding principles. Turin, Italy: International Labour Organization. serving several other clients, perhaps across multiple sectors and regions. In much of the development work conducted over the past 40 Delivery models for business years, the areas of rural finance and agriculture development services have been undertaken separately. Financial services can also be referred to as general Services can be delivered by a variety of actors business development services; however, farmer across a range of formats. For instance, a segments and production activities require transporter offers a highly specialized single different financial products. The importance of service, whereas an input supplier may offer a more general services is that demand for them range of services in addition to the provision will come from many sectors and value chains, of inputs, such as finance or agronomy and their provision is likely to be more easily training. Generally, we can categorize business sustained than specific services, which cater to a development services as general support services smaller number of users. and sector- or product-specific services. Sector- or product-specific services General support services Business development service providers can also These are sometimes referred to as crosscutting adopt a more narrow focus to address the needs or non-sector specific services. For instance, if 20 of specific agricultural sub-sectors. For example, farmers are part of a group or cooperative, that a vegetable farmer who needs seed and fertilizers organization may receive training in business may seek advice from an extension agent or an management, accounting and marketing. These agricultural researcher with specific knowledge of

Box 3.

Types of support services provided to the agri-food sector by category.

Type Examples of Services Fertilizer suppliers Market information price

Single service Seed merchants Warehousing providers Millers Infrastructure (roads, power, water) Transport Telecommunications Input supply (general) Market research Credit, savings and insurance Business management

General service Market research and intelligence Legal services providers Farmer organizing Food safety, quality and compliance Mobile phone services Sustainability certification Agricultural extension (general) Post-harvest management and storage Input supply (specific) Sector/product Veterinary services specific Agricultural extension (specific)

13 A Guide to Strengthening Business Development Services in Rural Areas vegetables. Alternatively, a livestock farmer who Nonprofit organizations has no interest in irrigation technology or seed Local and international nongovernmental will be interested in accessing livestock medicines organizations (NGOs) provide a wide range of and may seek advice from a vet or an expert in services in support of farmer productivity and animal husbandry. market linkage activities. NGOs receive funds from individuals and donors to fill the service gaps left Who provides business development by retrenchment of government support and market failures within the private sector. NGOs often use services their funds to subsidize services or to support the Public sector agencies development costs of a new service. In many cases, NGOs also provide free services, such as technical Public policies related to agricultural production assistance and training, and they occasionally and trade play a fundamental role in ensuring pre-finance certain assets. However, the coverage inclusive, sustainable development of small-scale of NGOs is partial at best, and in many cases farming, particularly with regard to women. Public their work is focused on serving the poorest sector agencies, such as ministries of agriculture communities, rather than the more commercial and other entities, provide a range of services smallholder sector. We discuss the practice of to smallholder farmers and to agro-enterprises, providing free or subsidized services below. including agricultural extension and research services. Farmers have traditionally received Private companies these services free of charge. Unfortunately, lack of public finances and rapidly rising populations As the public sector’s ability to provide services have severely reduced the coverage of most has declined, there has been a significant extension services, thereby restricting their increase in the provision of services by various ability to reach isolated farming communities. levels of the private sector. These services include In the past, governments provided seed and sales of equipment and infrastructure, technical fertilizer supplies and commodity marketing assistance, agronomy training, accountancy, and buying boards to help boost production business planning and legal services, among and offer farmers a market option. The supply several others. Private sector providers often services have waned and commodity boards have demand a fee for their services and their mostly been dissolved. Most farmers now sell as sustainability depends on farmers’ willingness individuals through local traders to wholesale and and ability to pay. retail markets. Most of the market locations and In many circumstances, input supply companies structures were established through infrastructure view smallholder farmers as both suppliers of investments by government and many are too agricultural products and customers of business small to support current trading levels. development services. Many input suppliers In a limited number of countries, there is a move provide farmers with inputs on credit and at to replace commodity markets with commodity the end of the season, buy the harvests of their exchanges, such as the Ethiopia Commodity client farmers. In other cases, agrochemical firms Exchange. This type of market provides effective and agricultural equipment distributors sell price discovery through its buying floor and sets their goods, but they may also provide technical basic standards to support long-distance trade assistance and training for their clients or for a select group of products. Most countries prospective clients on the use of their products invest in agricultural research to produce better (e.g., how to control pests and diseases and how varieties and improve farmer practices. However, to properly apply the correct fertilizer dosages for many national research agencies have suffered different crops). from protracted periods of limited financial Increasingly, supermarkets, agri-food processing support and there are now significant innovation and exporters provide technical assistance and gaps, particularly for orphan crops and livestock training to farmers within specific value chains as that offer limited commercial benefits. This a means to ensure the quality of the product they explains why most private companies support receive meets their specifications. These companies hybrid maize, beans and vegetables, but rarely also frequently offer farmers and producer groups support research in improved millet and affordable financing options for short-term working sorghum, root crops and other legumes. capital and long-term expenditures. For example, as part of its Livelihood Charter, the global commodity-

14 A Guide to Strengthening Business Development Services in Rural Areas trading firm Olam has provided zero-interest loans Local and informal service providers to farmers, plus training and input procurement. In rural areas, there are many informal private While some companies charge farmers for these sector providers of inputs, information, technical advisory services, the cost of providing them is often advice, training and finance. For instance, factored into the cost of the product when purchased individuals or groups of farmers who are from a producer. When the cost of a service is particularly skilled at producing a particular crop included in the cost of a commercial transaction, may also set themselves up as seed producers if it is known as an embedded service. Embedded demand for seed offers a business opportunity, or a services are described in more detail below. cooperative may buy other inputs in bulk and sell Banks and other formal financial them to their members at the wholesale price. This approach has been extended to other areas, such institutions as for savings-led microfinance and even for general Access to finance remains a major challenge for information and communications support. rural communities whose livelihoods depend on agriculture. Poor financial literacy, lack of credit The Grameen Foundation has developed a history and limited collateral restrict smallholder program around community development workers, farmers’ ability to access the capital they need who are given a smartphone and a charger to invest in and expand production. At the and receive training on how to access specific same time, commercial banks and other formal types of information for the community. This financial institutions have failed to offer adequate program typically starts as a subsidized service, financial services due to perceived and real risk but then transitions into a fee-based service as factors; this is especially true when considering the community uses the service to fulfill their disaggregated and geographically dispersed information and communication needs. agricultural value chains supported by farmers who practice rain-fed production systems. Rain- CRS is pioneering a similar service for savings- fed farming is considered a high-risk enterprise, led programming in which a person from the as poor rains significantly reduces yields. community is selected and trained as a private sector service provider to help set up savings Over the past several years and with support from and internal lending groups. The service provider loan guarantees or other credit enhancement then provides training to group members on mechanisms from donors and multilateral how to organize, manage and operate the groups development institutions, banks have widened and supports the management committees in their reach and are beginning to expand lending bookkeeping, with advice offered for a small fee. to smallholder farmers—from large multinational institutions, such as Rabobank, to local domestic These informal service providers play an firms, such as Equity Bank in Kenya. important role in rural communities in the absence of formal fee-based services. These In Kenya, much of the expansion in access to service providers are often most suitable when rural finance was brought on by the rapid growth providing services to smallholder farmers in in mobile money through M-PESA, a mobile disaggregated and geographically remote value phone-based money transfer service that helped chains, as they are sometimes the only service spread the reach of financial services and reduce provider in the area. transaction costs. Additionally, various social lenders and impact investors, such as Root Capital and responsAbility Investments, have Who pays for business development developed unique models to provide finance to services farmers and rural entrepreneurs using forward How business development services are paid for contracts as a form of collateral. More recently, helps explain how such services are provided. traditional venture capital and private equity This understanding helps in decision making firms have sought to invest in agriculture. Of when attempting to fill service gaps or improve course, large multinationals are also making the quality of existing services. Generally, strategic investments and offering trade finance services are supported in three ways: through their sustainable sourcing initiatives (Case Studies 4.1 and 4.2). •• Free public services. These services are financed by the government or through donor-financed

15 A Guide to Strengthening Business Development Services in Rural Areas

projects. These services are usually provided market reforms in the late 1980s and 1990s led to a through NGOs or public sector agencies. rapid reduction of government services. •• Specialized fee-based services. These services are provided by private firms and To fill this void, donors supported a series of specialized companies at a cost. privatization programs to catalyze the growth •• Embedded services. These services are of the fledgling private sector. Unfortunately, in included within a commercial transaction. The many cases the transition was too rapid and in individual farmer or agro-enterprise does not the absence of strong local private sector partners, pay direct fees for the embedded services, but many donor-supported projects were forced to the cost of providing the services is included provide goods and services directly to clients. This in the price paid for a particular product—for went against the original intention, which was to example, quality specifications and production provide goods and services through a facilitated tips from a buyer to a small-scale supplier. private sector. Widespread project support was In the case of hybrid seed, farmers receive attractive to poor smallholder farmers, but it was seed that has an insecticide coating; the cost also widely blamed for crowding out private sector of the insecticide is not charged separately provision of services (Figure 4). The transition but is embedded into the overall seed price. period from government services to private sector Similarly, technical assistance and services services has proven to be very long term. Many might be included for one year after the rural communities still have few opportunities to purchase of an irrigation pump. In certain access private services and millions of farmers financial transactions, crop insurance is have insufficient incomes to pay for them. embedded into the cost of a loan. The challenges in service provision have led to a dilemma. Essential services are in Delivering business development services many cases still provided publicly through a combination of donor, government and NGO Moving from a supply- to a demand-led financing mechanisms. Some services, such approach to service provision as sales of hybrid maize seed, support strong and concentrated demand; these services are As previously explained, governments relied on public supplied directly by the private sector or through funds to provide free or heavily subsidized services to subsidized private means and linkages with millions of farmers in the 1970s and 1980s. However, community volunteers. The dilemma is that

Figure 4. Strong government or public sector dominating service provision.

16 A Guide to Strengthening Business Development Services in Rural Areas many services to smallholder farmers are in some Market principles should be applied to service way based on short-term policy subsidies or are provision in the same way they are applied to project driven, and therefore, these interventions physical products. Clients—in this case core chain are short term. When a project or short-term actors, such as farmers, processors and traders— government subsidy ends ends, the services demand services, and project funds are used to are withdrawn and newly developed businesses assist local private sector service providers to meet and farming opportunities may collapse if they their needs. are not sustainable in the absence of essential services. This has led to an ongoing concern This market orientation means that projects are about the sustainability of short- to medium-term designed to develop business skills alongside the development projects. core chain actors and, at the same time, to identify, foster and strengthen business skills of those that The failure of the model in Figure 4 to achieve provide support services. sustained growth of entrepreneurial activity has sparked some donors, government and development The use of a systematic approach is required to organizations to reconsider how to provide support investigate the need for a service and the supply and to production and market development projects.

Figure 5. Public sector facilitation of private sector service provision.

The basis of market-oriented approaches, as demand opportunities for that service. Specifically, it indicated by M4P, is to shift away from directly is essential to answer the following questions: providing publicly funded goods and services, and move toward support that facilitates a more •• Which services are essential and which are sustainable business development environment. desirable? Market-friendly projects aim to enable private •• Which services exist and which are absent? sector actors to build their capacity to provide •• Are existing services effective and useful? services demanded by value chain actors and their •• Are existing services accessible and affordable enterprises. The important change is the role of to the target client? development organizations from providing services The analysis may highlight mismatches between directly to facilitating or supporting the private supply and demand and suggest whether existing sector to provide the services (Figure 5). or new private sector providers can resolve these differences. Mismatches might include:

17 A Guide to Strengthening Business Development Services in Rural Areas

•• Gaps where demand exists but supply does not. On the demand side, constraints include: •• Gaps where demand exists but supply is deficient due to: •• Unfamiliarity of markets and the benefits that •• Quality issues in which a service exists but services provide. does not meet the needs and demand of •• Reluctance or inability of smallholders, especially clients, for example, training courses that are the poorer members of a rural community, to pay too long or theoretical. for services, even if those services are needed for •• Coverage that is restricted geographically or by them to make more money. type of client. •• Lack of non-financial capacities to take •• Coverage that can be accessed by clients but is advantage of business services, including not affordable. general awareness that such services exist. •• Duplication, where supply exceeds demand, •• Imbalance in power among chain actors that perhaps due to overlap of projects providing inhibit access to services by some actors. similar services, such as farmer training. •• Prevalence of subsidized or free services provided by the public sector or donor- If a service requires strengthening, the project supported development projects have needs to feature measures to improve the eliminated incentives for smallholders or ability of providers to fill the identified gaps, or producer groups to pay for services. upgrade the relevance or quality of their service. For example, as part of a needs assessment On the supply side, constraints include: conducted by AT Uganda, more than 2,000 High costs involved in providing services to agro-input dealers were asked to rate a number •• clients that are geographically dispersed, of business skills according to their perceived especially the poorest communities where road importance and their own level of competence. and transport networks are the least developed. The skills ranked as most important by the Real and perceived risks of working with largest proportion of dealers included business •• smallholder farmers (e.g., limited income, plan development, internal auditing, financial minimal collateral, unpredictable and highly analysis, networking and management of farmer seasonal cash flows). demonstrations. These survey results guided Lack of qualified human resources to deliver expert the design, implementation and monitoring of a •• services at an affordable cost in remote areas. project aimed at strengthening access to capital Prevalence of subsidized or free services and business services for agro-dealers (Case •• provided by the public sector or donor- Study 2.2). supported development projects that crowd out Additionally, in areas where total gaps exist, it the development of sustainable service markets. may be necessary to encourage new providers One traditional challenge of rural areas has been to enter the service market. Also, competition poor communications; however, this has been between providers is seen as useful in promoting overcome largely through mobile technology. efficiency and relevance, increasing coverage Mobile phones are a vital service in transforming and reducing costs. Chapter 3 investigates more and facilitating access to important services, such deeply how a systematic approach can be applied as market information, financial services and to identify gaps and improve the provision of technical extension advice (Case Study 2.3). business development services. Implications for the design of Constraints to service delivery in development projects rural areas Distortion of demand A market-oriented approach to business As previously discussed, the demand and supply development services works well in urban of services in rural areas can be highly distorted situations where participation in markets is by government actions and development projects, longstanding and has received greater support. especially those that provide free or heavily However, in rural areas a number of constraints subsidized services. This is a major problem make the introduction or improvement of for development projects in poor areas, where business development services more complex. the aim of the project is to provide support to

communities that are living in extreme poverty or

emerging from an emergency or economic shock. In such cases, the natural inclination is to give

18 A Guide to Strengthening Business Development Services in Rural Areas people seed, tools and advice; provide transport; such situations to provide services in a market- help build roads and bridges; and generally assist oriented manner, but without requiring a fee. people to produce more and link them to markets. Figure 6 shows the two types of service delivery. Some people view the supply of free or subsidized The bottom left corner shows a target group of services as filling gaps that are caused by societal people who can afford to pay for a specific service. or market failures. Others see it as inhibiting the This area of support can be extended through the growth of market-oriented services. development of new types of service mechanisms, through cost reduction and advertising or With limited financial resources, the public sector sensitization projects. provides services that are usually limited in terms of timeliness, quality and coverage, especially in more remote areas. The focus of support is usually on production. Despite these drawbacks, government support to agriculture in rural areas is rarely time bound.

On the other hand, development projects are typically better resourced and offer services more aligned to poverty alleviation and livelihood goals. However, these support measures are limited to the lifetime of a project, often 2 to 5 years, and are dependent on continued donor funding. Coverage is also limited to the project area and often to specific target groups.

Designing agricultural interventions with a Figure 6. Market access frontier. market-oriented approach to service provision Source: Adapted from Porteous, D. (2005). The access requires that development practitioners: frontier as an approach and tool in making markets work for the poor. U.K. Department for International •• Have a clear understanding of how the market Development. for business development services function. However, as indicated in the top right corner, This requires an initial market assessment to there will always be a subset of people who determine if distortions in service markets can cannot afford the service; these individuals fall be removed or mitigated. into a redistribution zone, where services are •• Clearly separate the role of field staff who either not available or provided at subsidized will facilitate the promotion of services and levels or for free. The goal of projects that the local entrepreneurs who will provide the work according to the principles of financially services. sustainable development is to find ways of •• Develop a clear vision for how end-of-project providing services to poor communities that sustainability will be achieved. What is the encourage them to use services and prosper, and time frame? What are the goals and milestones eventually gain access to the longer-term fee- leading up to the project’s completion? based services. Who will provide what type of service, how and at what price? Based on this vision, In designing interventions to improve access to design a responsible and clearly defined exit services, practitioners need to: strategy and broadly communicate it to all stakeholders. •• Understand the needs of clients at the household and community levels. Sustainability of demand and supply •• Understand the finances of clients at the The demand for a service only exists where there household level and for specific products is an ability and willingness to pay for the service. that the project supports. This may include Without the financial means to pay, the client has key staple crops, cash crops or livestock. It a “need” that cannot be turned into a “demand”— is important that field staff understand and many rural services are likely to fit into this appreciate the amount and timing of cash flows category. Other mechanisms are required in associated with various products (Case 5.1).

19 A Guide to Strengthening Business Development Services in Rural Areas

•• Make smallholder farmers aware of the In finance, mobile technologies have reduced importance and implications of using services transaction costs and deepened the reach of to improve the profitability, sustainability and banks and microfinance institutions, allowing growth of their enterprises (e.g., animals will them to more effectively serve smallholder die if farmers cannot access veterinary services; farmers across remote areas. For instance, yields will remain low without fertile soils). M-PESA has transformed Kenya’s economy since •• Identify existing services that are provided launched by Safaricom in 2007 and has become by informal service providers and for which the most successful mobile phone-based financial no payment is expected. Support the means service in the world; its 23 million subscribers by which entrepreneurs can extend their transfer about 25 percent of the national GDP business and social relationships (e.g., through the system each year. The system has strengthen support from local traders revolutionized the business of farming for both or informal input suppliers, rather than commercial growers and smallholder producers. replacing them, as trading relationships go For example, the Syngenta Foundation and UAP beyond the life of a project). Insurance provide farmers with index-based •• Look for opportunities to embed services in weather and crop insurance under a program commercial transactions. This avoids the known as “Kilimo Salama,” using M-PESA to perception that a service has to be paid for collect small premiums and issue payouts. directly (e.g., working with traders, wholesalers or retailers to provide technical assistance Other private sector actors, NGOs and governments and training for farmers in meeting quality are investing in a wide range of mobile technologies standards that buyers demand). to link farmers with information, services and •• Provide technical support to existing service market opportunities. This includes using mobile providers to better assess the demand for phones to inform farmers about best planting services and then to modify or upgrade their dates for crops in their locations, help farmers and offerings to meet these requirements and agri-dealers detect counterfeit seed and fertilizer, reduce the costs of service provision. map land ownership, share price and market •• Use temporary and targeted subsidies for some information via SMS, and learn crop management essential services (e.g., the provision of seed practices by speaking with an expert agronomist at until farmers can either produce their own a call center. seed or organize to buy bulk seed at a lower The rapid rise and proliferation of mobile cost) (Case Study 2.1). technologies has also resulted in new analytical Co-invest with farmers and entrepreneurs so •• business tools and calculators to equip farmers that both parties have a stake in the success and producer organizations with production and of an investment, rather than looking for sales data to help them make informed business entitlement funding. decisions. For example, Esoko has pioneered a Establish local networks of private sector service •• market information service that enables farmers providers who can sell specific services on a with mobile phones access commodity prices part-time or full-time basis; examples include in major markets in a country, make offers training in financial services, commission agents and bids, and ask questions to a helpline (Case who help aggregate buying of goods from input Study 2.3). suppliers, and local para-vets who sell basic medical needs to livestock owners. Other firms are pursuing opportunities to apply data-driven solutions to agriculture, including start-up ventures such as Cropster, Frontline The mobile revolution SMS, Farmerline, Sourcetrace, Zerion and many Increasingly, millions of smallholder farmers more. CRS worked with partners to develop a and micro-entrepreneurs are being empowered business planning tool and profitability calculator through the convenience and affordability of known as Farmbook. This tool enables field mobile technology. For many, mobile phones have agents to register farmers, build business plans become essential tools that have strengthened and evaluate the profitability of specific products. business ties and opened up new opportunities (Ferris, 2012).

20 Chapter 3. How to Improve Business Development Services for Smallholders Christopher Wheatley

This section covers the process of designing, Priority setting and planning implementing and improving the provision of business development services. It is structured Entry points for business support initiatives around three stages. For each of these stages, the The two project approaches in this guide, value guide provides specific methods and illustrates chain based or area based, represent different them with examples from the case studies in Part entry points for providing business development 2. Lessons drawn from the wider development services. While the value chain approach allows literature are also included. the project team to focus on specific services that support targeted products, an area-based •• Priority setting and planning. Priority approach is more open and flexible, with the setting refers to the services themselves as potential to provide services across a wider range well as the target groups of service users and of commodities and farmer segments. The case providers. This stage begins with conducting studies in Part 2 cover both value chain and area- a diagnostic study to establish a baseline based approaches. understanding of service supply and demand, and the context in which the services will In both approaches, the first step is to gain be performed. This context may relate to an understanding of the current state of rural a geographical area or community, or to a services. This step provides the basis on which specific commodity or value chain. interventions can then be designed, prioritized •• Implementation. In the implementation and promoted, and establishes the rationale and stage, the plans developed are carried need for investing in services in the first place. out to meet the agreed objectives, based on the priorities, service deficiencies and Which product, what service? opportunities identified. In some of the case studies, product selection •• Monitoring, evaluation and learning. Given occurred during project design. In the examples of the balance between core chain actors and dairy and passion fruit in Kenya, calamansi in the service providers, it is critical that monitoring Philippines and navy beans in Ethiopia, products and evaluation systems are in place to capture were selected during the project design phase, and track both sets of stakeholders during based on partner analysis and criteria, such implementation. Feedback from performance as importance to smallholder incomes, market monitoring enables the actors involved to linkage prospects and value-added potential. modify and refine service delivery and to ensure When using the area-based approach, some sustainability during and after the project. projects identified specific services based on Precise monitoring also provides accountability initial needs assessments. Examples include a to stakeholders in the process, including donors, project that redesigned sales and distribution government agencies, private sector partners systems for improved seed in Burkina Faso (Case and nongovernmental organizations (NGOs). Study 2.1) and a project that organized input Lastly, documentation and dissemination is supply companies in Uganda (Case Study 2.2). essential to scaling up successful approaches Additionally, given the critical and constant and ensuring that project learning goes beyond demand for financing among smallholder individual interventions. farmers, financial services were also typically The case studies in Part 2 have gone through the identified during the design phase. In Tanzania, three stages, although some focus more on the for example, CRS looked to the project itself and implementation stage than on the planning or introduced informal Savings and Internal Lending monitoring, evaluation and learning stages. Communities among participating farmers (Case Study 5.1).

21 A Guide to Strengthening Business Development Services in Rural Areas

Other area-based projects evolved their users, who are often smallholder farmers or small service offerings over time. For example, in El enterprise owners with limited formal education, Salvador CRS recognized the need to establish may not be familiar with the concept of services agribusiness centers in rural municipalities and are unlikely to respond to a question such as that were not served effectively by the public or “What business services do you use or pay for?” private sector (Case Study 1.2). However, these centers did not start out with a rigid framework This is especially true when investigating the for what services would be offered; instead, they use of informal and embedded services provided tested the waters, gradually adding and adjusting by other chain actors, such as traders and services to meet the needs of their customers— processors. The source and even existence of local smallholder farmers. Over time, the centers these services are often not immediately obvious became rural hubs of commercial activity and to the users. served as agents for coordination among value Assessing service supply and demand provides a chain actors—linking traders and representatives picture of the existing service market. It makes of commercial brands with producer associations sense to assess demand before supply, as one and cooperatives. output of the demand-side exercise will be a list Focusing on opportunities of the service providers who will then be surveyed The project team needs to be aware that many for the supply-side study that follows. rural development projects are designed from a Analyzing the demand for business “problem-focus” orientation. But perhaps more development services importantly, successful projects also need to A “demand” is not the same as a “need” or “want.” be “opportunity-focused.” Before starting an Investigation of “willingness to pay,” whether in implementation plan, the project team needs cash or in kind, helps determine overall market to review the situation and find out if any demand and is a common means of differentiating opportunities have been missed. Markets are between wants and needs. dynamic and teams need to be ready to take advantage of opportunities for new crops, new Experience from several cases has shown that markets and new partners as they emerge. rural households are reluctant to pay for services that are currently or have previously been offered The diagnostic study for free, even if the services were subsidized, In the value chain-approach, once a product poor quality or limited in coverage. For example, has been selected, it is necessary to conduct a in many value chains, agricultural extension diagnostic study of the entire chain to identify and agronomy training may be needed, but few relevant actors and understand flows of material farmers are willing to pay as they either do not (including inputs, raw materials, products and see the immediate value of these services, or more by-products), finance and information through commonly, they are accustomed to receiving these the chain. Diagnostic studies should also identify services for free. Conversely, embedded services problems or bottlenecks at each link in the chain. may be paid for without the client even realizing There are many guides already published that it, as it can be difficult to tease apart the various cover the value chain diagnostic process in detail. elements of a bundle of goods and services For projects that include support for business provided to a contract farmer or out-grower by a development services from the outset, an analysis trader or buyer (Christen & Anderson, 2013). of existing services must also be included within Box 4 shows a sample checklist of questions the scope of the diagnostic study. Practitioners to elicit the information needed to understand should document services from both the demand demand for services. perspective (i.e., service users) and supply perspective (i.e., service providers) (Boxes 4 and 5). Additionally, care is needed to identify gaps in service provision, both in terms of absolute gaps To do this requires that surveyors ask detailed for non-existent services and relative gaps where questions to actors along the value chain. This service quality or coverage may be deficient. type of analysis is not as straightforward as it Existing services may suffer from a range of may first appear; surveying the availability and deficiencies, such as: nature of existing services requires a nuanced approach and needs to be undertaken with care Poor quality or irrelevance—not responding to to elicit meaningful responses. Rural service the characteristics of the area or value chain, nor

22 A Guide to Strengthening Business Development Services in Rural Areas meeting the needs of the client. This is especially commercial agri-food sector, or to a highly problematic when considering free or highly dispersed rural client base. subsidized services where the user has little say about service content or delivery and feedback Analyzing the supply of business loops are minimal or non-existent. development services This second-stage exercise should be based on the Limited coverage—available only for a restricted results of the demand-side study to ensure that client base, geographic area or group of value all the service providers that were identified are chains due to budget limitations or other included. Providers comprise (1) formal institutions, constraints. such as public sector agricultural agencies, NGOs or input suppliers; (2) core value chain actors Limited sustainability—due to poor design, themselves who may also offer embedded services; misaligned incentives or time-bound, project- and (3) local, informal service organizations, such based funding. as savings and loan cooperatives.

Inadequate frequency—due to budgetary When identifying existing services, teams constraints of the service provider. should include relevant aspects of their costs, sustainability, coverage and frequency of provision. High cost—often occurs when services are provided mainly to clients operating in the

Box 4.

Sample checklist of questions for investigating service demand.

General information •• Document the geographic reach and crop •• Record name and contact details of service coverage of the services (e.g., crop specific, user/client. across commodities/value chains). •• Distinguish type of entity (e.g., household, •• Document the cost of the services to the farmers group, small business, cooperative). user/client. •• Describe type of business activity (e.g., primary •• Identify barriers to access and understand what production of crops/livestock, processing). the user must do in order to obtain the services. •• Determine the quality of the services from the Service inventory user’s perspective. •• List and define services used. (This often •• Identify problems with existing services and requires prompting to uncover the full suggest improvements. range of services, for example, production, •• Analyze the results and overall impact of post-harvest, marketing, organizational and service (e.g., productivity increases, quality financial services). improvements, income and welfare gains, strengthened organizational capacity, Service description empowerment of women, conservation of Describe each service identified. •• natural resources). •• Determine who currently provides each service. •• Determine who else has provided each service Service gaps and deficiencies in the past, or who could potentially provide it •• What services are lacking? in the future. •• What current services most need improving? •• Identify the frequency of service. •• Why are needed services not already provided, •• Identify the methods and mechanisms for or why are current services delivered poorly? service delivery (e.g., in person on farm, •• Do farmers demand new or improved services? in person at community center or on a •• What impact would new or improved demonstration plot, via nearby farmers, services have? via mobile). •• Who are possible providers of new services? •• What is the willingness to pay for new or improved services?

23 A Guide to Strengthening Business Development Services in Rural Areas

The perceptions and reality of these services can Finally, when mapping service providers, it is vary dramatically among users and providers. important to look far up the chain to identify specialized actors who may not be immediate in Secondly, it is essential to understand how the terms of their geographic proximity or perceived services are financed—whether through fixed- rate fees and use charges, international donors or relevance to producers. This critically important domestic government subsidies. There is also value group may include lawyers, accountants, in capturing the future plans and vision of service equipment and input suppliers, banks and mobile providers: Do they plan to offer new services? Will service providers. they make changes to existing services? Do they seek to expand coverage? What are their ideas Box 5 shows the type of information that should regarding future value chain developments? be collected to understand the supply of services.

Box 5.

Sample checklist of questions for investigating service supply.

General information •• Determine how each service provider is •• Record name and contact details of service funded (e.g., self-funded, debt or equity provider. investments, subsidies or donor support). •• Distinguish type of entity (e.g., •• Determine if service prices are differentiated nongovernmental organization, private by client group, and if there are innovations business, public sector agency, cooperative). to reduce the cost of providing the service in •• Describe entity (e.g., history, length of rural areas to a dispersed client base. time providing services, number of staff, •• Explore their assessment of their clients’ infrastructure and facilities, equipment). willingness to pay for the service. •• Consider the sustainability of service over time. Service inventory •• Determine the importance of service viability •• List and define services provided. (This to the provider organization. Is it a main often requires prompting to uncover the full activity or of marginal importance? range of services, for example, production, •• Analyze the results and overall impact of post-harvest, marketing, organizational and service for users (e.g., productivity increases, financial services.) quality improvements, income and welfare gains, strengthened organizational capacity, Service description empowerment of women, conservation of Describe each service identified. •• natural resources). •• Determine geographic coverage. •• Document range of commodities, crops and Service improvement products covered. •• Understand how the providers measure impact •• Explain service delivery and key activities and how they rate the quality of their services. involved. •• Explore their suggestions for improving •• Describe clients (e.g., number, farmer existing services and their vision for segments). expanding coverage. •• Document recent scale of service provision •• Determine how they evaluate new service and forecasts to determine if the organization offerings or business opportunities (e.g., for is expanding or contracting. whom, at what cost and how?). •• Identify the frequency of service. •• Explore their level of understanding of •• Document the cost of service to the provider specific value chains and/or local economies. and the cost to user. •• Determine the service provider’s need for •• Describe their terms of payment for users capacity building. What skills, knowledge and (e.g., cash, discounted from product sales). experience is lacking? •• Understand their plans and vision for the future.

24 A Guide to Strengthening Business Development Services in Rural Areas

Methodology for undertaking a business In both cases, these gaps were presented in service demand and supply study workshops with farmer groups and service Service supply and demand is usually providers who reached consensus on future investigated either as one part of a value chain priorities based on known demand and the analysis exercise, or as a stand-alone survey in potential for financially viable and efficient a given geographic area that is not commodity services (Case Study 1.1). specific. Other times, the type of service is already defined so the diagnostic and planning This type of process helps build the foundation stage can focus on this type of service only. on which action plans for implementation can be developed jointly with service providers and Service studies can be carried out using formal client groups. There are two approaches to survey instruments, such as questionnaires, implementation: or by using more participatory methods, such as focus groups that include chain actors and Build new business development service service providers. Participatory and experiential models—design specific services where demand research methods are particularly useful when has been identified, and facilitate or contract attempting to determine willingness to pay for their provision with interested organizations, services, which needs to be verified in practice. combined with service promotion or education to potential clients. Formal quantitative questionnaires are likely to be more expensive and demand more time. If Support existing business development service using survey research methods, it is important providers—implement more general support to to include several open-ended questions with providers, encouraging them to design, introduce repeat prompts and follow-up questions to (or improve) and promote their own services. ensure that all formal, embedded and informal The choice of which approach to use will be based services are captured. on several factors, including: Participatory methods are especially useful when •• The capacity of local service providers to linked with supply chain mapping, as services develop and implement new and improved available and demanded at all links in the chain services, based on the diagnostic study results. can be identified and discussed by the actors in a •• The type of service and value chain involved, common forum (Case Study 3.2). Following such and whether the service is financially viable an exercise, analysis of the responses must be and sustainable in the short to medium term. communicated back to all stakeholders so that This includes a consideration of the existing the most important mismatches between supply balance between free or subsidized services and demand are identified and can be addressed and market-based services in the target area in the implementation stage. and value chains. Developing an action plan •• The overall socioeconomic environment of Once the supply and demand for services are the area, including its degree of market better understood, results can be discussed by orientation, communications and transport stakeholders to identify weak or poor-quality infrastructure, and civil society development, services and gaps where services are absent among other factors. (i.e., demand exists, but there is no supply). For Where market orientation is weak or relatively example, a survey carried out with 27 farmer new and services providers are unfamiliar with groups in Cauca, Colombia, found that most managing market-based services, the first and existing services were concentrated on crop and more hands-on approach is probably warranted. livestock production, and the main gaps in service But where conditions are favorable and the value provision related to processing and post-harvest chain or local area is already at a commercial technical assistance, support for marketing stage, there may be sufficient economic incentives and training in information technologies. A to encourage and facilitate existing providers to similar survey in Yorito, Honduras, found the introduce new services themselves. The actual same focus on crop and livestock production, implementation mechanisms under each of these with significant gaps in post-harvest technical approaches are outlined in the following section. assistance, farmer organizing, accounting, marketing and access to finance.

25 A Guide to Strengthening Business Development Services in Rural Areas

The diagnostic study serves to identify both among Kenyan processors, smallholder business the problems with existing services and the organizations, input companies and other service opportunity (gaps) where services are missing. In providers, with the aim of building partnerships, the next stage, specific interventions that resolve achieving economies of scale and upgrading milk the problems or realize the opportunities are quality to national and international standards identified and implemented, based on the results (Case Study 3.2). Similarly, in Ethiopia, of the diagnostic work. In general, interventions facilitation of linkages between farmers, other in service markets can be defined as supply or value chain actors and service providers, such as demand side, depending on whether they are extension agents, researchers and microfinance directed at service providers or clients. institutions, was critical in developing a new business model that enabled smallholders to participate equitably in an export-oriented value Implementing the action plan chain (Case Study 4.1).

Supply-side interventions Develop embedded services Supply-side mechanisms for improving services Organizations can help develop a variety of involve working with existing or potential new service embedded services provided by value chain actors providers to design, or in some cases redesign, to rural smallholders and primary processors. and promote their services in line with known or This includes services such as technical forecasted demand. This can include facilitation of assistance from input suppliers and working and assistance with the following activities. capital finance from exporters. For instance, a beverage firm in the Philippines firm provides Supporting market research and business technical assistance to a fruit-processing plan development cooperative (Case Study 3.1). Similarly, Organizations can assist providers in conducting Colombian traders provide information to research to gain more detailed market horticultural producers related to urban market information on a specific service offering, or they demand that influences their crop selection and can directly provide the necessary information planting/harvesting times (Case Study 1.1). A to the provider. In some cases, the providers Kenyan dairy sector initiative also facilitates use themselves may finance market research and of embedded services to dairy farmers, with the business plan development as an essential part cost covered by deductions from the milk checks of their business development process, but in received by producers (Case Study 3.2). other situations this type of preliminary activity may be supported by project funds. For example, Develop and promote new or improved services the International Center for Tropical Agriculture Many providers can benefit from developing new joined with two consortia of community-based services or redesigning existing services to better organizations in Colombia and Honduras to align with client demands in terms of content, improve local business services for rural agro- quality, frequency and cost. enterprises. As part of this project, potential or existing service providers interested in In Uganda, for example, an outdated market introducing or enhancing their services were able information service was redesigned and to access grant- and loan-based financial support strengthened to enable farmers to negotiate from each consortia to research and present a prices and make decisions on what to produce, business plan to demonstrate service viability when to sell and where to sell. With this over time (Case Study 1.1). evolution, the part of the service transitioned from donor-funded to fee-based in line with Identify new service providers and demand (Case Study 2.3). In Guatemala, a facilitate partnerships large-scale horticultural cooperative was able to Many times, organizations can play a critical leverage its relationship with an international facilitation role by simply “connecting the dots” buyer to expand training on food safety and and strengthening the overall environment in packaging procedures (Case Study 4.2). which the project operates. This can include Similarly, In El Salvador, agribusiness centers working within and beyond the local area or improved the quality of existing services, adding the particular value chain under consideration, business and marketing plan development and where relevant, to offer information to providers market information-sharing services based on and link them to potential clients. For instance, new realizations of customer demand (Case Land O’Lakes facilitated commercial linkages Study 1.2).

26 A Guide to Strengthening Business Development Services in Rural Areas

Provide capacity building for service providers harvest operation of the value chain—including Several of the case studies directly involve making the terms of payment more favorable to capacity building for service providers to enhance small-scale producers (i.e., faster payment, using their ability to develop and implement relevant, warehouse inventory as collateral). viable services. Provide services for service providers In Kenya, project partners facilitated training In the longer term, service providers themselves workshops and seminars for service providers need to be able to access opportunities to on business planning, financial management, further improve their services and upgrade their embedded service delivery, marketing, after- capacity. This goes beyond the remit of short- sales service, and sustainable natural resource term projects and involves linkages with research management practices within the dairy sector and development organizations, value chain (Case Study 3.2). actors and government. For example, Uganda’s market information services have evolved from a Other examples include a navy beans project in donor-funded project to an entire sector that is Ethiopia (Case Study 4.1), a project in Uganda to commercially viable and growing. This evolution strengthen agro-dealer services (Case Study 2.2), involved interaction and support from a wide and efforts to improve market linkages for passion range of development and commercial partners. fruit and chili pepper farmers in Kenya and Uganda (Case Study 3.3), where fee-based services around Demand-side interventions technical assistance, business management and Demand-side interventions are focused on group organization were important. encouraging prospective users or clients Offer financial support for new or of services to take up the services. Such improved services interventions can include generic awareness Financial support may include debt and or and promotional activities, as well as specific equity capital investments for service business mechanisms oriented at particular services. development, as well as targeted, temporary Provide subsidies to reduce the price of a service subsidies to cover situations where the start-up Providing subsidies is a practical means to cost of a new service may be hindering viability encourage new clients to try a service they have (e.g., due to a limited number of initial clients not used, or to trial a service that has changed and higher unit costs). Any financial support to be more in line with client demands. The idea needs to be based on a business plan for the of such targeted subsidies is to reduce the cost service that demonstrates long-term viability. In of an initial trial, so that clients can assess the the Colombia case study, the team followed this value of the service against the full fee that will strategy, with loans from the local service support be charged after the trial period is completed. fund contingent on the development of a viable business plan (Case Study 1.1). Similarly, the Another option is to provide service users with Kenya dairy case study promoted new financing vouchers that can be redeemed by service providers arrangements for the dairy sector through from the institutions responsible for operating collaboration with financial institutions and the initiative. This demand-side mechanism gives other donor-supported development programs the service user the flexibility to decide which (Case Study 3.2). These arrangements included provider to use. The supply-side alternative would products targeting both service providers and be to provide funds directly to service providers to consumers, with an emphasis on increasing directly reduce the cost of the service to first-time women’s access to financial services. users. For example, seed vouchers provided to farmers in Burkina Faso allowed them the option Another example comes from the financial to obtain seed from any seed provider, both from services promoted in Nicaragua for bean the formal and informal sectors, at CRS-sponsored producers, with emphasis on enhancing the seed fairs (Case Study 2.1). services provided by a range of microfinance institutions (Case Study 5.2). Other case Raise client awareness studies, such as working with chickpea farmers Raising awareness of new or improved services, in Tanzania (Case Study 5.1) and establishing and their benefits, through general promotional grain warehouse receipts programs in East Africa campaigns or via specific advertising of (Case Study 5.3), are concerned with improving particular services by the providers themselves is the returns to producers through better post- another demand-side approach. In El Salvador,

27 A Guide to Strengthening Business Development Services in Rural Areas agribusiness centers became a focal point where reduce its viability as a business. In contrast, a range of services was promoted (Case Study some services (e.g., veterinary assistance) may be 1.2). In Colombia, the local NGO consortium, specific to a particular value chain, and there is Inter-institutional Consortium for Sustainable little point in considering a more generic offering. Agriculture, undertook promotion of its support Thus, depending on the type of service, it may be fund to encourage and solicit applications from better to consider a geographic area (territorial) potential providers for a range of services in approach in some cases or a more specific focus demand (Case Study 1.1). A project within the on the value chain approach. Kenya dairy sector used a directory of services to promote providers to potential clients across the Role of the support institution sector (Case Study 3.2). The key role of support institutions is facilitation. The support institution should work with both the Group service users or clients to reduce unit service providers and the target clients to improve costs through enhanced negotiating power the service provision as part of a larger project Coordination of service demand can substantially goal. For instance, the Kenya dairy project used a reduce costs and enhance the negotiating power range of local facilitators selected from the private of the service users. For example, a recent project sector through a competitive bidding process. The in Honduras was able to negotiate lower legal fees facilitation role required bringing together chain for the formal registration of farmer groups and actors and service providers from differing cultural, enterprises that would not have been possible organizational and educational backgrounds, if they were contracted individually (Case Study and forging a common agenda for action. This 1.1). Similarly, coordination of planting and required the project team to maintain a balance harvesting times among a number of horticultural between cooperation and competition among chain producers was key to enabling these farmers to actors and service providers (Case Study 3.2). win a contract to supply institutional markets Typically, a forum for dialogue and negotiation that demanded supply continuity in Colombia needs to be established where chain actors and (Case Study 1.1). This coordination service was a service providers can meet to identify priority viable business in its own right. A similar supply interventions and the methodology to implement chain coordination service is operated by Cuatro them. The types of services to be promoted are Pinos in Guatemala (Case Study 4.2). normally based on the diagnostic studies carried out in the design phase of the project and in the Implementation Issues early implementation phase, as outlined earlier in Development organizations and market this chapter. Involving local actors in these studies facilitators should take into account the helps to build ownership and accountability of the following issues when designing implementation results, and it helps to align needs more effectively mechanisms for strengthening service provision. with the local situation. Area (territorial) versus value chain approach Subsidies for services Many initiatives that aim to link smallholder Ideally, market-based services should operate farmers to markets now take a value chain focus, free of subsidies—this approach allows the most working with chain actors to improve efficiency, efficient providers with the best-fit services to profitability and equitable trading relationships. succeed. There may be opportunities for start-up Examples in this guide are the Kenya dairy fee-based services in some value chains, such project, Kenya passion fruit project, Uganda as in the dairy or export-oriented horticulture, chili project and Ethiopia navy bean project. but even embedded services that target more Service provision forms one part of this overall commercially oriented farmers have been easier to task and is usually tackled as part of value chain fund than services relying on up-front payments enhancement or upgrading initiatives. However, by users. not all services are dependent on specific value chains. Market information and access, input To help build services to support smallholders, supply and financial services, for example, tend it is common that project teams offer an initial to be more generic in nature, and they require subsidy to encourage trials of new or improved clients from many value chains to be viable. services. This can be justified in terms of “buying For such generic types of service, an exclusive down” some of the risk that the service company focus on a particular value chain may artificially has in offering a service in a new location, or to a limit the size of the market for that service, and new set of clients.

28 A Guide to Strengthening Business Development Services in Rural Areas

Co-investment in a new service is also justified local services support fund has continued to with the expectation that satisfied clients will operate since the project finished and has been return to a service that is established in the area significantly recapitalized (Case Study 1.1). and available at full cost only. In the context of In Kenya, several of the passion fruit service access to finance, guarantee funds have also, in providers remain viable, despite undergoing a part, been successful in stimulating financing difficult period after project termination (Case for smallholders by reducing risk, decreasing Study 3.3). Cuatro Pinos in Guatemala has a long administrative costs and encouraging banks to track record of sustainable service provision to the lend to new client groups. horticultural sector using fee-based and embedded services that cover costs. Their strong business There is also a case for the use of vouchers to orientation and private sector engagement has assist customers in buying new services, or been key to their success (Case Study 4.2). to pay a part of the costs of a service. In some projects that support highly vulnerable segments of a community, there may also be a rationale Monitoring, evaluation and learning for providing vouchers that cover the full costs Monitoring occurs alongside implementation. of certain services. This will enable the poorest What is measured needs to be designed at the people in a community to access services that planning stage and the information needs to be others can and are able to afford. For example, collected routinely. Monitoring the performance of most farmers may be willing to pay for seed of a business service requires business metrics that, improved varieties if they could link to authentic among other things, highlight if revenue earned vendors. Vouchers may be given to the poorest from delivering a service is covering the costs of people in the community to access the seed if delivering that service. In other words, will the they are not in a position to pay. service become profitable and at what point will We should also be mindful that many locations or it break even? What is required to achieve this situations with remote and dispersed smallholder financial break-even point? producers selling into low value and poorly Metrics to monitor the performance of a business developed markets are either unable or unwilling service must not only be related to the project’s to support services that cover their full cost of own anticipated outputs and outcomes, but they provision. This situation is particularly common in also need to make business sense. Targets need the areas of technical assistance and training, which to be set in terms of clients using the service, many farmers view as an entitlement, after years of with associated revenue streams. If the planned receiving free government extension services. service usage, and/or original revenue estimates In some cases, subsidies aiming to supply are not realized by a specific time, the business a “public good” service may be a reasonable plans will need to be changed. option, but should only be supported where Monitoring for the business service environment there is a clear commitment from a public sector is therefore much more than just providing agency for longer-term provision (i.e., a post- activity and output accountability to donors. project strategy exists). The monitoring process must generate business Exit strategy analytics that can be used by project managers From the outset, every initiative should plan who are facilitating the service provision and for the continuation of a service before project by those who are implementing the services. funds are withdrawn. Several case studies An effective management plan will enable the in Part 2 of this guide provide examples of facilitators and service teams to make timely projects where initial support was phased out operational adjustments to improve service responsibly and without causing problems in effectiveness and profitability. the viability of the services provided, nor of the Mid-term project reviews, which take place organizations that provide them. during implementation, can also be understood For instance, some of the agribusiness centers as part of the monitoring process. They provide in El Salvador generated sufficient income snapshots to assess whether a given process to continue once CRS’s direct support was is on track, and to highlight organizational or terminated (Case Study 1.2). In Colombia, the budgetary issues that require attention.

29 A Guide to Strengthening Business Development Services in Rural Areas

Evaluation takes place toward the end of time- The steps to complete include the following: bound projects and provides more detailed information to assess intermediate results and •• During project planning, select indicators and outcomes of interventions. Such evaluations metrics that will show service usefulness in provide accountability and support to plan terms of (1) services supplied to target clients additional operational phases, if applicable. and (2) learning and making short-term Evaluations can also take place following a adjustments to strengthen services. The data project’s completion to assess the effectiveness needs to be simple and easy to obtain so the of exit strategies and the overall sustainability monitoring process does not become confusing or impact of services following direct project or burdensome. support. Fundamentally, evaluations enable •• Produce a monitoring plan that clearly facilitating organizations to assess whether the designates who will collect the information, “pathway to impact” or “theory of change” has when and how to collect the information, who been realized. will analyze the data, and most importantly how the learning will be used. Learning is based on use of the information •• Collect initial baseline data on each indicator collected during monitoring and evaluation. to measure changes. In some cases, projects To be useful, the information from monitoring also use control areas or individuals not and evaluation processes must be documented, involved in the project to compare with the discussed and disseminated in a timely manner. project’s direct beneficiaries. This is important for stakeholders in existing •• During the implementation process, ensure projects so that best practices and lessons routine and accurate collection of monitoring learned can become more widely known, but data and conduct periodic analyses to check it is also critical for future expansion into new data quality and consistency. Presentation of value chains, geographic areas, communities analyzed data and reports during stakeholder and organizations. For example, this guide forms and project meetings will assist implementation part of a learning process for the initiatives and and enable course corrections, if necessary. experiences presented and discussed here. •• Mid-project reviews may be undertaken to assess progress and identify both operational The monitoring and evaluation process and institutional issues that need to be To improve rural business development services, adjusted during the remaining period. monitoring and evaluation should gather •• Schedule and budget for end-of-project and information from both service providers and post-project evaluations to ensure stakeholder service users. accountability and contribute to wider lessons and scaling out, if success was achieved. Key questions for service providers relate to their performance compared to their business plans: It is important to use the results to benefit the services offered, numbers of clients, revenue initiative and to contribute to broader learning and versus costs and overall financial viability, knowledge sharing. Accomplishing this requires: among several other indicators. The project Documentation. In addition to formal should assess both the contribution of the •• project reports, documentation in more service to rural development and the longer-term accessible formats that are appropriate to commercial viability of the service. rural stakeholders is useful. These can take For service users, key questions relate to how the the form of case studies, videos, brochures service has been used, such as frequency, cost and posters. and practical applications. Facilitators will also •• Feedback to the service providers and want to determine how business development service users. Post-project feedback should services have impacted client agro-enterprises: be delivered to service providers and service has the farmer, producer group or cooperative users through any forum or platform that has increased production, improved product quality, been previously established so the outcomes, expanded to new markets, increased employment, benefits, and remaining problems and issues reduced costs, or achieved any non-monetary can be highlighted and discussed. This benefits, such as greater gender equality? contributes to learning and improvements Gathering feedback on service quality, willingness over time. As markets are dynamic, the to pay and suggestions for improvements should content and nature of the services that chain also be solicited from service users.

30 A Guide to Strengthening Business Development Services in Rural Areas

actors demand may change over time; service that has outgrown the project, but it offers providers need to be aware of these changes. many best practices and lessons learned. •• Dissemination. Sharing lessons through •• Competition with subsidized services. national, regional or other development forums Several case studies report that the provision and business networks enables methods and of free services distorts the market and experiences to be scaled up to a wider area reduces the potential for unsubsidized and across other value chains. providers to prosper. The agri-dealer input supply project in Uganda, the dairy sector Lessons and challenges of monitoring and project in Kenya and the support services evaluation processes project in Colombia and Honduras all found The case studies in Part 2 provide several major challenges in attempting to establish examples of monitoring and evaluation processes fee-based services in some areas, especially in action. Key lessons include: related to technical assistance and training, when these services are being provided for free Monitoring and evaluation is weak. Few good •• by public sector agencies. The Uganda project cases of comprehensive impact evaluation have competed with other projects that provided yet to be undertaken. This is partly because the subsidized inputs in the same area, indicating strengthening of rural business development that coordination between agencies across the services is a relatively new type of intervention. public, private and NGO sectors is needed. Existing evaluations and impact studies include Time frame required for interventions. Many horticultural business development services •• of the initiatives presented in this guide are in Kenya (Sebstad & Snodgrass, 2008); the relatively short-term projects. However, the National Agricultural Advisory Services (NAADS) process of strengthening business services in Uganda (Benin, et al., 2011); and the value almost always goes beyond a project time frame. of the market information system in Uganda The Kenya passion fruit case study shows that (Svensson & Yanagizawa, 2009). Conducted by when project support was abruptly terminated, external research teams, the methods used in the provider underwent significant difficulties these studies included structured and semi- and a reorientation in order to survive (Case structured interviews with service providers Study 3.3). This learning experience provided and clients, and comparisons between service opportunities to create new services in other users and control groups of similar users in value chains, but it reflects the dangers of donor adjacent areas. dependency and the need for a coherent exit The studies proved useful as a means •• strategy in place from the beginning. of documenting the positive effects that The time frame for success is likely to be business development services had on value •• longer for geographical areas and communities chain performance and poverty alleviation. that are less market-oriented, or for value In general, it was easier to document chains that rely on local markets or are improvements in value chain components— less commercial. The success of service such as adoption of new seed varieties, development in export-oriented horticulture, greater use of post-harvest technologies and such as passion fruit in Kenya, chili in development of new market linkages—than Uganda, the dairy sector in Kenya, and in to demonstrate conclusively that these have regions with good market linkages (Cauca resulted in significant economic benefits to in Colombia), indicates that in favorable small-scale producers and other target clients. circumstances a time frame of five years is This is due to issues of attribution, as control adequate, including a transition away from groups also showed positive economic changes. any project-based support. In less optimal Difficulty in knowing when to measure •• conditions (such as highlighted in the case impact. Some of the case studies are at the studies for navy bean project in Ethiopia, and beginning of the implementation stage and Yorito in Honduras), a longer time horizon is are unable to justify any impact evaluations. required, with time allocated to awareness Others, such as the establishment of raising, improving the basic business skills agribusiness centers in El Salvador, have of farmers, and developing relationships and demonstrated financial viability (in most trust before attempting to introduce market- cases) but there is not yet clear information on oriented private business services. the benefits to the users of the services they provide. The case of Cuatro Pinos in Guatemala is a strong enterprise with a solid track record

31 Part 2: Case Studies A Guide to Strengthening Business Development Services in Rural Areas

Implementation Number Title Location Approach A Local Business Development Services Fund to Improve Colombia Area Based 1.1 Agro-Enterprise Support Services Honduras Catalyzing Smallholder Inclusion in Value Chains through Area Based 1.2 El Salvador Agribusiness Development Centers Connecting African Farmers to Seed Enterprises with Vouchers Burkina General 2.1 and Fairs Faso General 2.2 Development of Agricultural Input Dealers in Rural Uganda Uganda General 2.3 Building Second-Generation Market Information Systems Uganda General 2.4 Agricultural Extension Services in Africa Africa The Role of the Development Facilitator in Building the Value Chains 3.1 Capacity of Smallholder Farmers to Link with Modern Markets: Philippines Calamansi Growers in the Philippines Kenya Dairy Sector Competitiveness Program: A New Business Value Chains 3.2 Kenya Model for Kenya’s Dairy Industry Private Provision of Market Linkage Services for High-Value Kenya and Value Chains 3.3 Crops Uganda New Business Models 4.1 Enabling Informal Farmers to Access Formal Markets Ethiopia Social Intermediaries for Market Access: The Case of the Cuatro New Business Models 4.2 Guatemala Pinos Cooperative in Guatemala How Savings-Led Microfinance Has Improved Chickpea Finance 5.1 Tanzania Marketing in the Lake Zone of Tanzania Facilitating Financial Linkages for Smallholder Producers in Finance 5.2 Nicaragua Nicaragua Establishing a Warehouse Receipts Program: The Experience of Finance 5.3 East Africa the Eastern Africa Grain Council Inventory Credit Improves Farmers’ Incomes and Food Security Finance 5.4 Niger in Niger

33 Case Study 1.1 A Local Business Development Services Fund to Improve Agro-Enterprise Support Services By Chris Wheatley, Braun Wheatley Partners, Carlos Chilito, CorpoInnova, Luz Angela Libreros, and Marco Antonio Vasquez, VECO

A market-oriented approach to service provision local community-based organizations and in rural areas poses many questions. For nongovernmental organizations. example, are farmers and rural small businesses •• Yorito and Sulaco municipalities, Yoro willing to pay for services? How can services be Department, Honduras, with the consortium sustainable after a project ends? of local farmers’ and women’s groups (Comité Local para el Desarrollo Sostenible de la This case study describes how the approach Cuenca del Río Tascalapa or CLODEST). to business development services, which was successful in promoting urban small enterprise Caldono has good market access. It is located in the 1990s, was strengthened and adapted on the main road between two provincial in two contrasting rural situations in Colombia cities and benefits from communication and and Honduras. transport infrastructure. Yorito is farther from markets with poor road and telecommunications infrastructure. Additionally, CIPASLA’s member Background: Improving business organizations are more market-oriented than services through community-based CLODEST. The differences between the two multi-stakeholder consortia locations and local organizations made for a worthwhile contrast, which has enhanced the Between 2003 and 2007, the International Center lessons learned from the project. for Tropical Agriculture (CIAT) joined with two consortia of community-based organizations to improve local business services for rural agro- Approach: The business service enterprises. The project was financed by the New improvement process Zealand Aid Programme (NZAID). The project was divided into three phases: CIAT’s rural agro-enterprise development project had been working with these two 1. Diagnostic stage and action plan development consortia for more than five years to identify, 2. Implementation of the action plans design and implement a variety of agro- 3. Monitoring and evaluation, scale-up and learning enterprise projects. The addition of a business The two local consortia agreed to use a support development services component was seen as a fund known as FASSLA, the Spanish acronym complementary, and necessary, element to help for Local Agro-Enterprise Support Services Fund, ensure the initiative’s sustainability over the as the mechanism to facilitate the development longer (post-project) period.1 of new or improved local services. Potential (or The project was undertaken in two locations: existing) service providers would be able to access financial support for introducing or enhancing •• Caldono municipality, Cauca Department, their services through a process that involved Colombia, with the Inter-institutional Consortium presentation of business plans to demonstrate for Sustainable Agriculture (CIPASLA) of service viability over time.

However, the two consortia decided to operate 1. More information on CIAT’s approach can be found at: the fund in different ways. CLODEST provided CIAT rural agroenterprise development: Good practice grant support to service providers, with the guides. International Center for Tropical Agriculture (CIAT) website. http://webapp.ciat.cgiar.org/agroem- effect that the support fund would run down presas/ingles/good_practice_guide_series.htm during the life of the project. CIPASLA, on the

34 A Guide to Strengthening Business Development Services in Rural Areas other hand, believed that the services should be filter served to eliminate non-viable proposals. viable businesses in their own right and therefore For potential service providers that did proceed should be offered through loans, not grants. This to the next round, CIPASLA employees, who would enable the support fund to remain active received training from the Colombian National beyond the life of the project, based on interest Apprenticeship Service, supported them in payments accruing to the loans over time. business plan preparation.

Phase 1. Diagnostic studies and action The successful proposals were almost all from plan development the informal sector: existing chain actors, such as processors or traders, who required working The project first sought to understand the capital loans up to US$1,000 to increase existing supply and demand for services in both their purchases of local raw materials (e.g., areas before developing an action plan. Similar sugarcane, cassava, coffee, vegetables) from diagnostic studies for support service supply neighboring producers in order to expand their and demand were carried out in both locations; business. There were no successful applicants CIPASLA undertook their own study in in the areas of accounting or legal services; Colombia, while CLODEST, which lacked the in- they were all eliminated at the business plan house capacity to do this, contracted research stage. CIPASLA itself attempted to establish to a locally based consulting firm in Honduras information services via the Internet, but the known as CODESA. CODESA was founded by high cost and unreliable connectivity proved too former agricultural extension agents made difficult and the service failed. redundant when the old public sector extension service was disbanded. Demand was assessed Examples of services funded through CIPASLA’s through focus group interviews with farmer FASSLA include: groups and small enterprises, and supply was assessed through interviews with a wide range •• A new input supply business to mix locally of service providers, including providers of purchased feed ingredients to make a range of informal services who comprised some of the balanced feed rations for sale to pig producers. value chain actors themselves. •• Expansion of the vegetable marketing business of a local trader. When buying from smallholder In Cauca, Colombia, existing services were farmers, the trader embeds in the price the cost limited to the provision of credit and inputs of additional services, including the provision of to support production. However, farmers also seed and advice on which vegetables to plant in demanded services related to post-harvest line with market demand. management and marketing support, as well as •• Expansion of existing small-scale local information technology solutions, legal advice processing enterprises, including those for and accounting services. cassava, sugarcane, coffee and dairy, to enable them to increase the raw material volumes In Yorito, Honduras, a similar situation was purchased locally and meet product demand. reported. Most existing services focused on •• A new business to organize a schedule of the production component of agriculture with planting and harvesting among local vegetable informal service providers supplying marketing, producers to collectively ensure the continuity credit and inputs. Yet services prioritized by of supply required to meet demand from local CLODEST’s members were marketing, legal and institutional buyers. accounting, mobilization of additional funding and strategic planning for member organizations. In the case of CLODEST, expressions of interest were received in all areas and evaluated against Phase 2. Implementation a set of pre-established criteria. As the financial In Colombia, CIPASLA’s loan-based FASSLA support was grant-based, contracts were drawn fund of about US$20,000 was made accessible up with the selected providers and the services to enterprises that submitted business plans for were implemented. The strategic planning, new or improved services and demonstrated a project development and resource mobilization capacity to repay the loan. The fund was widely services were contracted to CODESA, the local promoted in the local area and many concept consulting firm that undertook the diagnostic notes were received. The enterprises with concept study. As a result of the study, CODESA notes that met a set of basic criteria were selected effectively re-oriented the services. The marketing to advance to the business plan stage. This service was contracted to a local agronomist,

35 A Guide to Strengthening Business Development Services in Rural Areas an accountant undertook basic training for expand infrastructure, widen geographic local agro-enterprises and farmer groups, and coverage and invest in technology systems. a legal assistant provided assistance in formal •• Intention and need to obtain new credits. legal registration of each CLODEST member Eighty percent of respondents wanted to organization or enterprise. access additional loans through the fund to improve their business further, especially due As these services were carried out under service to the simplicity of the process and interest provider contracts with CLODEST, the longer- rates charged. term achievements were limited. Firstly, legal registration was obtained for all groups or For those indirect clients who used and benefited enterprises, and they were trained in basic from the services of the providers, reported bookkeeping. However, there was no continuity outcomes included: of service provision after the contract period ended for these subsidized services. Secondly, •• Business improvements. Eighty-seven the marketing service was a failure with no percent of indirect clients reported having a new markets realized despite the identification positive experience in their relations with the of several possibilities. The strategic planning service provider, with 21 percent reporting and project development services were more income increases and 74 percent reporting successful. The planning process led to the improvements to their own business that identification of future projects and the translate into financial benefits, such as more development of proposals to national agencies, working capital, better infrastructure and some of which were funded. lower transport costs. •• Capacity to invest. For indirect clients, Phase 3. Monitoring, evaluation, scale-up the main investments made with increased and learning income were: •• More money to spend on food and other At the close of the project in 2006, the funds household expenses, such as education remaining in CIPASLA’s FASSLA were divided into and home improvements. three successor support funds (see next section •• Increasing their purchase of inputs for for details), which have continued to disburse the business, such as seed, livestock and loans. Two years later, an evaluation study found animal feed. a number of benefits, including: •• Embedded services. The indirect beneficiaries •• Access to more working capital (27 percent detailed a number of additional embedded of respondents), improved or expanded services that they received alongside the infrastructure and purchase of new principal service offered by the provider. These technology especially for panela production included information on market prices; the (37 percent of respondents) and increases in purchase and supply of agricultural inputs on income (20 percent of respondents). their behalf, thereby reducing transport costs •• Quality of life. Thirty percent of respondents and time; technical assistance; working capital reported an increase in monthly income up to loans; and some direct supply of inputs that 250,000 Colombian pesos (Col$), 33 percent was then discounted from the purchase price. reported increases between Col$250,000 and •• Improved operating environment. While Col$500,000, and remaining respondents they were unable to assign a monetary value reported even greater increases.2 According to to additional benefits, the smallholder farmers the survey, beneficiaries invested this additional surveyed generally perceived that the project income in family well-being (57 percent of helped stabilize prices, increased the sense respondents), including better education and of belonging by better use of local resources, home improvements, while the rest of the reduced transportation costs, increased access income gains were reportedly used to re-invest to inputs and improved the quantity and in their business or for personal benefit. quality of production. •• Expanding businesses. Ninety-four percent of respondents wanted to continue improving and Successes and challenges expanding their businesses. Priority activities The three-year project funded by NZAID ended in included: improve product quality, diversify, late 2006. At that time, the CIPASLA consortium in Cauca was in a difficult position as its main source of funding was ending with no prospect 2 US$1.00 = Col$2,000 approx.

36 A Guide to Strengthening Business Development Services in Rural Areas of renewal. The members of CIPASLA were funds were designed to provide short-term concerned about the future of the FASSLA fund, financial support to cover the start-up costs of which had retained considerable assets due to new or improved services, based on unsatisfied the very high level of loan repayments. Since the demands identified in the diagnostic study. As a existence of CIPASLA was in doubt, all parties result of this experience between 2003 and 2009, in Cauca decided that the best way forward was it is clear that initiating services in rural areas to divide the FASSLA fund among three member is a medium-term process, extending beyond the organizations, namely: life of a typical three-year project time frame. Success was achieved in Cauca through loan- 1. Association of Panela Producers financed embedded services delivered by traders, (ASOPANELA). “Panela” is a traditional processors and other value chain actors, and not unrefined sugar product. through provision of fee-based services, despite 2. Corporation of Farmer Research Committees an apparent willingness to pay in the diagnostic (CORFOCIAL). CORFOCIAL was formed study. In Yorito, grant-based finance of service through CIAT’s participatory research providers did not result in sustainable service program in the 1980s. delivery beyond the initial period contracted 3. Users Association of Cabuyal River through the project. Microwatershed (ASOBESURCA). ASOBESURCA is a farmers’ association near Cabuyal River and the area of action for Best practices and insights CIPASLA in Cauca. Some good practices that developed from the In late 2009, the three support funds continued project were: to operate and were successful in maintaining Using business plans to assess the viability of or increasing the amount of capital in each •• potential services. Several non-viable services fund. Each fund started out with Col$12 million, were eliminated at an early stage due to (equivalent to US$6,000 at an exchange rate of business plans that clearly showed the venture Col$2,000 = US$1). The balances at the time of would not be profitable given operational costs the study were: ASOPANELA = Col$62 million and other concerns. (equivalent to US$31,000), of which Col$30 Working with traders and other value chain million of additional capital was obtained from •• stakeholders through embedded services. This the U.S. Agency for International Development; is a viable strategy where fee-based services ASOBESURCE = Col$25 million; and CORFOCIAL are met with resistance. Helping local traders = Col$17 million. and processors to expand their operations In Yoro, Honduras, continuity after the NZAID enabled them to link more farmers to markets project ended was an even greater problem and increase overall farmer awareness due to CLODEST’s limited ability to operate of market requirements, such as quality autonomously, and the exhaustion of its FASSLA standards and harvest calendars. fund. While the support fund did not achieve Lessons from this experience include: its full aims in Yoro, the local consulting firm CODESA successfully internalized the concept •• Willingness to pay for services needs to be of market-oriented service provision and verified in practice. generated demand for new services across a wider •• Projects need flexibility and time to adapt to geographical area than that covered by this study. conditions on the ground. This may require Thus, future scale-up in Honduras will likely come changes in approach and exit strategies and may more from CODESA than through the CLODEST demand a longer and more flexible time frame. consortium. This was not expected in the project •• The community-based consortia were not design, but it reflects the difference in capacity effective service providers in their own right. and learning ability between the two consortia. Greater success was achieved when value chain actors themselves took on service provision. This project was conceived as a trial of the The loan-based support fund has proven market-based business development service •• sustainable in the post-project environment model in two rural areas of Latin America. The to date.

37 A Guide to Strengthening Business Development Services in Rural Areas

Conclusions In Yorito, the weaker institutional capacity of CLODEST, the poor linkages to markets and The project has shown that where market the lack of trust in local traders were barriers linkages exist and local institutional capacity are to the development of this service model. An quite strong, such as in Cauca, a flexible service- initial subsidy to services using a grant-based based approach could foster a more dynamic, funding mechanism did not result in sustainable market-oriented rural economy that involves service provision. The exception was the strategic local farmers, traders, processors and other planning and project development services of the actors. The use of a locally managed support fund consulting firm, CODESA, which generated new enables local households to benefit most, and development projects. appears to have assisted in promoting high levels of loan repayment.

38 Case Study 1.2 Catalyzing Smallholder Inclusion in Value Chains through Agribusiness Development Centers By José Ángel Cruz, Catholic Relief Services

Agribusiness development centers—run by private •• San Ignacio in the department of individuals, nongovernmental organizations Chalatenango, which is 92 km north of San (NGOs) or government agencies—support Salvador, the capital. This center supports smallholder farmers with a range of services market chains for vegetables, fruits, dairy, that link them to markets. Yet in rural areas, honey and handicrafts. It is managed by private businesses that provide these types of the Asociación de Municipios Cayaguanca services are scarce, and farmers may be unable (Association of Cayaguanca Municipalities). or unwilling to pay for these services even when •• San Vicente in the department of San Vicente, they do exist. Additionally, government agencies 60 km east of San Salvador, serves the plantain lack the skills and resources to perform these and sugarcane chains. It is managed by the tasks effectively. This case study describes Asociación Cooperativa de Aprovisionamiento how agribusiness development centers were Agropecuario La Esperanza San Esteban established in El Salvador. (La Esperanza, San Esteban Cooperative Association for Agricultural Supply). •• San Francisco Gotera in the department of Why set up the centers? Morazán, 190 km east of San Salvador, serves El Salvador’s poverty is concentrated in rural market chains in stockbreeding, vegetables, areas, where more than 60 percent of people are grains and crafts. It is managed by the Fundación extremely poor. Market chains are inefficient para el Desarrollo (Foundation for Development). and characterized by ad hoc and opportunistic transactions. As a result, most smallholder producers are not competitive and are unable to Establishment and operation of centers take advantages of new market opportunities. The establishment and operation of these centers progressed through four steps. To overcome this challenge, CRS El Salvador and a network of partners, including Cáritas Step 1. Establish the center El Salvador, the University of Central America The establishment of the centers consisted of four and local NGOs, established rural agribusiness main actions: centers. The centers provide smallholder farmers and farmer groups with access to basic technical, •• Financial support. The country’s Ministry marketing and financial information at a cost to of Agriculture and Livestock provided full enable them to make informed business decisions financial support in the form of a two-year and improve their market performance. This grant to establish the centers and build a work has focused on developing agro-enterprises client base so they could become financially and creating and strengthening local business independent over time. support services to serve smallholders who •• Personnel. Three professional staff were cannot afford the commercial services designed hired to support each center: a business for large-scale farmers. administration expert, a market specialist and an agricultural professional. Three agribusiness development centers were Assets. Each office was provided with basic established in municipalities that were not served •• equipment: computers, multimedia equipment, effectively by public or private service entities, software, camera, a training room, furniture, a including: car and a motorcycle.

39 A Guide to Strengthening Business Development Services in Rural Areas

•• Orientation. The agribusiness staff received Step 4. Achieve sustainability considerable training in agro-enterprise The centers were designed to be profitable development. This training provided the staff enterprises. The project design called for them to with a series of tools and techniques to identify be financially self-sustaining within two years. If market opportunities, analyze market chains the target of 85 percent financial sustainability and evaluate business services. It also covered was not achieved in this time, the centers issues such as product standards, marketing would be closed. The annual cost of running an rules and regulations, how to run workshops agribusiness development center is US$42,000. on business services, and how to build trust with local farmer organizations. The actions taken to cover costs and ensure profitability included: Step 2. Position the center in the local business and institutional network •• Ensuring good management. This This step involved the following activities: included (1) identifying suitable local host organizations that had the capacity to run an •• Gathered baseline information. The center agribusiness center; (2) establishing a board staff, along with Catholic Relief Services and with representatives of different producer its partners, collected information about the organizations and the host organization surrounding area. to monitor the center and advise on its •• Built partnerships. The centers also identified performance; and (3) preparing a business and contacted other organizations working in plan with performance indicators and the region that could act as partners. monitoring methods to measure performance •• Promoted the center. Promotion was done of the center. through radio, newspapers, mobile megaphone •• Generating revenue. This was achieved advertising, flyers and personal visits to by (1) selling high-quality, competitively producer organizations and institutions. priced services; (2) targeting clients that •• Aligned supply with demand. The centers were not currently served by competing gradually adjusted the services they provided service providers; and (3) writing proposals to the needs of their farmer clients. for business development projects that were funded by donor agencies, local organizations Step 3. Provide services and financial institutions. The centers started working with farmers and farmer •• Establishing strategic partnerships and groups. They undertook the following activities: networks. As the centers identify or create opportunities, they encounter organizations •• Identified potential clients including farmers, that may need skills that the centers can farmer groups, buyers and local NGOs. provide, or that wish to complement their •• Identified market opportunities for promising own work. The resulting partnerships benefit products on which to focus. both parties. Networks of clients, producer •• Prioritized products according to market organizations and service providers who value analysis and the center’s own capacity. these services help to consolidate the business. •• Met with local actors to present ideas on how These contacts enable access to market to analyze and upgrade market chains on the information and business opportunities. prioritized products. •• Coordinated between the center’s services and the network of actors involved in the respective Successes and challenges market chains. The Ministry of Agriculture and Livestock’s •• Implemented activities. The main services financial support for the centers ceased at offered were training, market information, the end of the project’s second year in 2007. business plan development consulting, CRS terminated its technical and financial business rounds (i.e., individual meetings with support for the centers in 2008 and assumed an potential business partners to discuss the advisory role. supply and demand for agricultural goods and services), input and product fairs, marketing plans and business assessments.

40 A Guide to Strengthening Business Development Services in Rural Areas

Business viability sellers together, facilitate negotiations, foster the exchange of information and identify new Two of the three centers are sustainable—those business opportunities. in San Ignacio and San Francisco Gotera. This is due in large part to the strength of their host organizations and their geographical location, Best practices and insights which provide several opportunities to sell services to local farmers, farmer groups and Best practices and lessons from this project are agricultural development projects in the area. relevant for (1) organizations that support the establishment of agribusiness centers and (2) The future of the center in San Vicente is less the management and staff of the agribusiness certain. It sells services to farmers and farmer centers themselves. groups, but unlike the other two centers, it has not been able to find other sources of project Organizations that support the support. This is perhaps because agro-enterprise establishment of agribusiness centers: projects are scarce in that region. Despite the area’s •• Define a clear and responsible exit strategy. agricultural potential, most of projects in this area A clearly defined strategy on how the supporting focus on food security, health and education. organization will leave in place the elements An ongoing challenge is matching the need to needed for the centers’ long-term sustainability develop a financially sustainable agribusiness should be developed during the project design center with the goal of providing these services phase and communicated to all stakeholders. to smallholder producers who have a limited The strategy should include actions that (1) ability to pay. A balance of better and less well-off promote supportive national and local policies clientele has to be achieved. for agribusiness development and (2) commit institutions that can upgrade the skills of center Viability of the centers also depends on good staff after the project terminates. management. The managers and boards of •• Identify appropriate institutions to manage producers must continue to work together to and run the centers. The centers that have improve the performance of the centers and turn entrepreneurial managers and well-qualified them into competitive enterprises. technical staff are proving to be the most successful. The selection of appropriate Service success local institutions responsible for managing The centers have become agents for coordination and running the centers is critical to their among actors in the market chains. For example, eventual viability. Among the most important they link importers and representatives of selection criteria are (1) the conviction that commercial brands with producer associations the center can provide fee-paying services that and cooperatives. These new relationships are in demand; (2) the determination to run have put an end to exclusive trading between the center as a business; and (3) strong and individual producers and suppliers, leading to professional leadership. improved opportunities and greater competition. •• Provide continuity in support. The project’s three-year time frame was too short to In all, the centers have coordinated among 65 consolidate the managerial ability of the local public and private organizations. They centers’ staff. For this reason, training needs have established a database of information to be well planned and iterative. It should about production and trade in their service provide sufficient time for the managers to areas, which is connected to the ministry’s web gain a good command of the types of business portal. They have facilitated 38 business rounds, services, the skills needed to support an leading to commercial transactions with a total agribusiness center, as well as the types of value of US$328,000. They have trained 17 financial planning, rigor and performance local managers to lead producer organizations, evaluation required. Even after three years, and have connected more than 8,000 users to it was clear that the staff required further specialized information. support to ensure the centers’ financial viability. An additional two years of gradually The centers play a connecting role in the chain. diminishing mentoring, capacity building and By understanding who produces what and monitoring would have been appropriate. who needs what, they help bring buyers and

41 A Guide to Strengthening Business Development Services in Rural Areas

Management and staff of the centers: example, the portfolio could include basic grains where market information is critical Begin by focusing on clients that can pay •• for product sales. In more developed sectors, for services. While the ultimate goal of a such as vegetable production, centers can center may be to extend support to vulnerable provide support in administration, accounting, and marginal farmers, the center has to company registration, packaging design, achieve economic viability by first providing production technology, good agricultural and services to clients that can pay. Eventually, manufacturing practices, and financing. cross-subsidy may be possible. That is, the Sell services from the start. In this project, income obtained from those who can afford to •• services were offered free for the first two pay can be used to subsidize those who are years. This led to farmers not appreciating unable to pay or cannot yet pay a full fee. the real value of these services and viewing Provide subsidies for recently created •• them as an entitlement. In future projects, agro-enterprises. Many recently created the agribusiness center should charge clients agro-enterprises are made up of less well- from the beginning. They may not charge the off farmers who will not be in a position full cost at the outset, but farmers should to pay for services until their enterprises realize that such services have value, and that turn a profit. Agribusiness centers should if they invest in this type of support, they can look for opportunities to use resources from become more profitable and open new market government or nongovernmental development opportunities. initiatives to fully or partially subsidize the Be flexible. Each center should have a staff of most critical services for these enterprises over •• professionals who provide certain services. The a given period of time. nature of the services may change over time as Develop a business plan from the beginning. •• the center positions itself, so staff have to be A medium- and long-term business plan for able take on new roles or the center may need the center that identifies services that have to draw on people with new skills. demand helps to avoid focusing on existing Collaborate and learn from others’ services that do not have sufficient demand to •• experience. Collaborating with organizations, be commercially viable. such as research institutions, financial Integrate producer organizations into the •• intermediaries, NGOs and government centers’ administration. The participation of agencies, avoids duplication and strengthens producer organizations in the governing body the centers’ ability to innovate and provide of the center catalyzes a sense of ownership quality services. and responsibility toward the center. This new role for representatives of the producer organizations is a learning process that should Further information start from the first year. Focus on priority commodities. To be Cruz, J. A. (2009). Fostering agribusiness development •• centers in El Salvador. In: Ferris, S., Mundy, P., viable, agribusiness centers should focus & Best, R. Getting to market: From agriculture to on a range of both higher- and lower-value agroenterprise (pp. 152–162). Baltimore, Maryland, products with strong growth prospects. For USA: Catholic Relief Services.

42 Case Study 2.1 Connecting African Farmers to Seed Enterprises with Vouchers and Fairs By Tom Remington, Catholic Relief Services

The availability of improved seed and farmers’ with seed aid, over the past 20 years, seed aid ability to access seed are critical for restoring has become a hallowed institution, with seed production following disaster. In the past, aid distributions being carried out more than 20 agencies have crowded out local, private seed times in Zimbabwe, Ethiopia, Burundi and Kenya providers with indiscriminate free distribution of at a cost of hundreds of millions of dollars a year. often poor-quality and non-adapted varieties. The institutional process of seed distribution This case study explains how seed vouchers and was originally called “seeds and tools.” Direct fairs served as a business development service seed distribution (DSD) relies on seed from for a small seed enterprise in southern Burkina the formal seed sector. Both the variety and Faso. Vouchers and fairs are a mechanism for the quality of formal seed are believed to be farmers to engage with local seed enterprises. better than farmers have or can access through They also pave the way for illustrating to farmers local informal channels. Seed procurement is the value of paying for high-quality seed from a straightforward tendering exercise for donors reputable suppliers, as they move from producing and nongovernmental organizations (NGOs) to meet their immediate food needs to selling alike. DSD has proven extremely profitable for ever-increasing quantities in the market. seed companies. However, problems continue to emerge. For instance, massive donor-funded purchases come without warning, thereby A Different approach to restoring seed overwhelming the certified seed supply, distorting supplies after disaster the market and creating opportunities for fraud by labeling grain as certified seed. Local agro- Across Africa, there are two distinct seed systems: dealers are also harmed as they do not receive (1) the farmer system that includes farmer-saved seed from seed companies to retail to farmers, seed, seed obtained from friends and neighbors rather the farmers receive free seed. and, probably most important, seed purchased at the local grain market; and (2) the formal system In 2000, Catholic Relief Services tried a different that includes certified seed of modern varieties approach. We assumed that good-quality seed of developed by international and national breeding the preferred crops and varieties was available in programs that is then produced and sold by the farmer seed system, but that farmers lacked commercial seed companies. Certification is a the necessary cash to purchase it or they were formal recognition that the seed meets standards too distant from available stocks to access seed of varietal and analytical purity and has a high readily. In other words, seed insecurity was a viability, or germination rate. problem of access and not of availability or of quality. The new approach combined the issuance Africa is beset by frequent disasters that disrupt of seed vouchers and the organization of special agriculture—mostly drought and floods but also seed fairs. These seed fairs were held in areas conflict. Responding to these disasters with seed where disaster-affected farmers could exchange aid has a compelling logic. For example, with 1 vouchers with a wide range of seed sellers. metric ton (MT) of seed aid, farmers can produce 100 MT of sorghum or millet. This can quickly From the start, seed vouchers and fairs had their and dramatically reduce the need for expensive critics, especially commercial seed companies food aid that is shipped across continents and but also organizations, such as the Food and trucked to remote places to feed people. Despite Agriculture Organization of the United Nations, the greater efficiency of supplying farmers that support the formal seed sector. Opponents

43 A Guide to Strengthening Business Development Services in Rural Areas claimed that seed sold at the fairs by farmers and vouchers to farmers, they readily agreed to traders was not seed, but grain. Seed fairs were participate. Unfortunately, the seed enterprises called food fairs! CRS believed that farmers would did not understand that they would be competing make wise choices in purchasing seed and that against farmers and vendors selling uncertified seed fairs should be open to all seed sellers. CRS seed. When learning this, the seed enterprises, structured the seed fairs to have a level playing members of the Burkina Faso National Seed field on which the commercial seed companies Producers Association, tried to prevent the selling certified seed of improved varieties could participation of local farmers and traders, compete with farmers and market traders selling insisting that only certified seed could be sold. uncertified seed of traditional varieties. The They said that “if it was not certified, it was not key to any successful seed business is satisfied seed.” After much discussion, with the Ministry customers, and seed fairs offered an opportunity of Agriculture siding with the seed enterprises for seed enterprises to market directly to farmers and the municipal authorities with CRS, the and convince them to exchange their vouchers seed fairs were allowed to continue. Most of the for certified seed. Farmers could then evaluate seed enterprises boycotted, but several decided the seed, and if satisfied, return the next year to participate including Venegre Association, an and purchase the certified seed again, this time established and reputable farmer organization without a voucher. producing certified seed.

The major reason for the decision by the Burkina Seed vouchers and fairs in Burkina Faso Faso National Seed Producers Association to boycott the fairs was the announcement that the Extensive flooding in August 2007 in southern World Bank was to fund the purchase of more Burkina Faso negatively impacted yields. than 7,000 MT of certified seed. The projected Whereas the region normally produces 133 amount of available certified seed, calculated percent of cereal needs, production amounted to from foundation seed sales, would not meet this only 62 percent in 2007. A rapid seed security demand. Therefore, most of the seed of rice, assessment in early 2008 revealed that, though sorghum and pearl millet had to be uncertified farmers normally get most of their seed from farmer seed. Seed producers had no incentive to what they produce and save, they would have compete at seed fairs when they could sell grain, to purchase most of their seed from the market fraudulently labeled as certified seed, wholesale for the next planting. In normal years, farmers to meet the World Bank demand. It was a case of source 74 percent of their seed from their own “seed not being seed” unless it was conditioned stock, 16 percent from the market and 7 percent and sold as certified seed by them. from the formal seed sector. Yet for 2008, farmers expected to source only 36 percent from their At the seed fairs, CRS agreed to inform farmers own stock, 40 percent from the market and about the difference between farmer seed and 25 percent from the formal sector. Knowing certified seed, encourage farmers to consider the this, CRS planned a series of 20 seed fairs and purchase of certified seed, provide certified seed the distribution of US$20 vouchers to 8,650 sellers a preferred location at the fair site and farmers with funding from the U.S. Agency for have farmers visit the certified seed area prior to International Development. moving to the open fair site.

Farmers exchanged vouchers for 302 MT of seed The combination of seed vouchers and fairs from 680 seed vendors, 57 percent of whom were proved to be an exceptional market opportunity women. Of the total amount of seed exchanged, 5 for the Venegre Association. They had the percent (15.5 MT) was from the formal sector. The opportunity to engage with and sell directly to average of 35 kg of seed purchased by the farmers farmers and succeeded in selling almost 7 MT of in exchange for vouchers roughly corresponded to seed in 1 kg packets. They learned that farmers the calculated shortfall in their own saved seed. mostly demanded maize and cowpea, not rice, sorghum or soybean. They also learned that farmers were willing to pay a premium for seed Successes and challenges they wanted: US$1.70 per kilogram for the short- When CRS explained to certified seed enterprises duration yellow maize variety KEJ and US$1.85 the plan to organize seed fairs and distribute for the cowpea variety KVX 61-1.

44 A Guide to Strengthening Business Development Services in Rural Areas

Best practices and insights enterprises should not expect or insist that farmers purchase 100 percent certified seed to Choice. Farmers prefer to weigh the pros •• meet their seed requirements. Rather, they should and cons and then make their own decisions present their seed in small attractive packets with on whether to purchase seed, what kind and their logo and convince farmers to purchase a from whom. Farmers were keen to purchase few kilograms. If farmers are satisfied, they will certified seed of new varieties that they had become repeat customers and perhaps increase not yet owned. the quantity of seed they purchase over time. Risk. Farmers seek to avoid risk. The risk •• Because certification is a formal recognition, it is of serious crop failure due to bad seed is not always appropriate for small seed enterprises significant and can be avoided by diversifying selling directly to farmers who need to rely on seed purchases. At seed fairs, farmers can trust or what might be called “social certification.” split their vouchers and buy seed of different crops and varieties from different vendors. Seed vouchers and fairs are now being promoted With DSD, there is a risk of receiving seed of by other NGOs (at last count, 64 NGOs in eastern non-adapted varieties. Democratic Republic of the Congo). NGOs need •• Trust. Farmers cannot tell good seed from to proactively engage the range of formal seed bad seed by looking at it. Farmers ensure that sector actors and stakeholders in the planning their seed is of good quality by first using their and implementation of seed fairs, beginning own seed and then buying from people whom with seed security assessments. Practitioners they trust. At seed fairs, farmers can purchase are encouraged to exploit vouchers and fairs seed from sellers that they know and trust. as powerful marketing tools and start using With DSD, farmers have no idea who produced them beyond the provision of seed; for example, the seed they are given. offering coupons for fertilizer, crop insurance or •• Social connections. Farmers like to get even livestock. together and share ideas and information. Seed fairs provide a space for farmers to Country seed laws are intended to protect interact with each other and with seed consumers from fraudulent seed—seed that is sellers. They are exceptional opportunities to packaged, priced and mislabeled as certified seed. promote new ideas, products and businesses. Seed laws are not intended to prohibit the sale of Alternatively, DSD is a top-down approach, uncertified seed by farmers and traders. However, with no opportunity for farmers to participate. seed laws are sometimes interpreted incorrectly •• Distance. Farmers do not like the cost and and are used to discourage the sale of farmer time required to travel to cities. They prefer seed and prevent the emergence of new seed their local markets. Therefore, seed fairs held enterprises. To ensure that the issuance of seed in village market centers are opportunities vouchers and the holding of seed fairs is allowed, for seed companies to reach out to farmers in NGOs need to proactively engage policymakers. their own rural communities. •• Free stuff. Farmers, like everyone else, enjoy receiving gifts. Coupons can be given Further information to farmers at seed fairs to exchange for small Bramel, P., Remington, T., & McNeil, M. (Eds). (2004). promotional packets of new seed varieties so CRS seed vouchers & fairs: Using markets in disaster they can evaluate it themselves. response. Nairobi, Kenya: Catholic Relief Services. Remington, T. (2008). CRS Burkina Seed Fair The combination of seed vouchers and seed fairs Experience. Baltimore, Maryland, USA: Catholic presents an opportunity for seed enterprises to Relief Services. connect with farmers and grow their businesses. Sperling, L., Cooper, H. D., & Remington, T. (2008). Yet for this to happen, seed enterprises must Moving towards more effective seed aid. Journal of treat farmers as customers. Rather than insisting Development Studies, 44(4), 586–612. that “farmer seed is not seed,” they need to Tripp, R. (2002). Seed provision and agricultural educate farmers on the quality of certified development: The institutions of rural change. seed and characteristics of new varieties. Seed London: Overseas Development Institute.

45 Case Study 2.2 Development of Agricultural Input Dealers in Rural Uganda By Rita Laker-Ojok, AT Uganda Ltd.

The transformation of smallholder farming from Originating from Appropriate Technology semi-subsistence to market-oriented commercial International in 1994, AT Uganda is now an agriculture requires access to high-quality and independent nongovernmental organization (NGO) affordable agricultural inputs, such as improved in Uganda. The organization has implemented a seed varieties, fertilizer and crop protection range of projects in the agricultural sector. products. In addition to having access to these inputs, farmers need the knowledge to use the In 2002, AT Uganda launched the “Facilitating products correctly and to understand the benefits Agricultural Input Distribution Linkages” project that can be gained through their use. that led to the formation of the Uganda National Agro-Input Dealers Association (UNADA). Since In many rural communities, small-scale dealers then, AT Uganda has been providing technical supply agro-inputs to farmers. These dealers support to build UNADA’s institutional capacity face many of the same problems as smallholder and enhance its services to members. farmers: lack of entrepreneurial skills as well as limited access to affordable technical and financial UNADA is the national apex organization for agro- business services. This case study is about input dealers in Uganda. It is a member-based the formation of a cadre of entrepreneurs that organization that exists to serve the interests of provide fee-based services to agro-input dealers the agro-input sector. Its mission is to represent, in Uganda. The aim was to improve the business network and empower member agro-dealers to performance of the agro-input dealers by making operate sustainable, profitable businesses that them more responsive to the needs of farmers. provide quality agro-vet inputs and services to farmers. As a business association, the heart of the organization is its roughly 680 member The creation of the Uganda National businesses, which are organized into 78 local Agro-Input Dealers Association branches across 10 regions in Uganda. Each of the branches elects a representative to sit on the Uganda is a nation of small-scale subsistence regional coordinating committee. farmers. More than 80 percent of the population live in rural areas, and most households have at least a small plot of land. While Uganda’s Strengthening agro-input dealers’ agricultural potential is significant, use of businesses purchased inputs is among the lowest in the world. Uganda’s Bureau of Statistics reported Census and needs assessment for project that in 2005 and 2006, only 6.3 percent of design farmers used improved seed; less that 1 percent In 2004, AT Uganda commissioned a national used fertilizer; and 3.4 percent used pesticides, census of agro-input dealers. The census herbicides or fungicides. Most smallholder provided a valuable profile of the sector and farmers were trapped in a cycle of poverty offered an opportunity for UNADA to reach out to characterized by low input use and low yields. and mobilize the entrepreneurs that made up this important sector. As a result, UNADA expanded The importance of using agricultural inputs to its coverage nationwide. The census identified enhance future productivity and meet national critical constraints and service needs in the food needs is what motivated AT Uganda to sector. The most important constraints revolved invest in the establishment and strengthening of around business management skills, demand an agro-inputs distribution network in Uganda. development, credit access and quality control.

46 A Guide to Strengthening Business Development Services in Rural Areas

These issues became the focus of UNADA’s structures nationwide. They had already member services, capacity building and policy established a large cadre of development trainers engagement activities. with experience working in rural communities. Importantly, UCAA also had good knowledge of In December 2008, a second census and financial management and auditing, had tested needs assessment was conducted. This census change process methodologies and had modest gathered more detailed information regarding payment expectations. the enterprise-level factors holding back the progress of agro-input businesses with the UCAA assisted AT Uganda in identifying the most objective of expanding the range of services that suitable trainers for refresher courses in business UNADA could offer to its members. The census plan development and BDS provision. They would identified and interviewed 2,064 input dealers. be expected to provide business services to agro- Of these dealers 59 percent sold crop inputs, 12 input dealers on a fee-for-service basis and would percent sold livestock inputs and 29 percent sold not be employed directly by either AT Uganda or both. The vast majority (80 percent) were sole UNADA. However, AT Uganda and UNADA could proprietorships, while 6 percent were formally engage them from time to time to undertake registered companies, 1 percent were community- specific assignments on contractual terms. based organizations or NGOs and 1 percent were cooperative societies. A total of 23 UCAA trainers (at least 2 from each of the 10 regions of the country) were selected As part of the needs assessment, dealers were to form a cadre of BDS providers offering a asked to rate a number of business skills portfolio of demand-led, needs-based services according to their perceived importance and to agro-input dealers. This team of trainers their own level of competence. The skills ranked was supplemented by other skilled individuals as most important by the largest proportion of selected directly by AT Uganda based on previous dealers included business plan development, contact and experience. The criteria used for internal auditing, financial analysis, networking selection of the service providers were: and management of farmer demonstrations. •• Prior business management training skills. This information guided the design, •• Community mobilization skills and implementation and monitoring of a new phase of understanding of training methodology. the project supported by the Alliance for a Green •• Based in rural areas, with all of the regions of Revolution in Africa and aimed at strengthening the country well represented. access to capital and business development •• Fluent in English and one of the major local services (BDS) for agro-dealers. AT Uganda held languages. follow-up focus group discussions with 95 agro- •• Committed and commercially oriented. input dealers to better understand their service •• Willing and able to take on additional BDS needs and willingness to pay for such services. provision tasks on a fee-for-service basis. The dealers identified constraints to efficient •• Willing to market their services to earn a business operations and explained how they had sustainable income. tried to address those problems. All participants recognized the need for advisory services. In Training of service providers and their addition to the needs identified in the census, linkage with agro-input dealers focus group discussions identified record keeping AT Uganda provided the cadre of selected service (especially interpretation of the records) and providers with a four-week orientation and access to markets as services for which they refresher training on the nature of the agro- would be willing to pay, although ability to pay input system in Uganda, the unique challenges of was limited. business management in this sector and general theory of BDS provision, as well as business Building a cadre of service providers in plan development, financial management and partnership with the Uganda Change Agent marketing modules. Association AT Uganda identified the Uganda Change Agent A critical first step was forming the linkage between Association (UCAA) as an appropriately skilled service providers and dealers. This was achieved partner in providing BDS to dealers. UCAA during the course of the various meetings and is a local NGO with deeply rooted community trainings staged by AT Uganda and UNADA. AT Uganda used every meeting held with agro-input

47 A Guide to Strengthening Business Development Services in Rural Areas dealers to sensitize and re-emphasize the benefits of AT Uganda also facilitated dealers’ access BDS, together with the service providers. to credit through a credit guarantee system. Dealers were linked to suppliers who provided Building a service portfolio based on needs inventory on 60-day credit, with a 50 percent The UNADA constitution stipulates that each down payment. The supplier was provided with branch must be audited and present their audited a guarantee on the line of credit by AT Uganda. accounts at an annual general meeting. As a Rural dealers operating as distributors with a means of introducing the BDS providers to the turnover of US$5,000 and more were required agro-input dealers, their first assignment was to to produce business plans and were referred assist in carrying out the UNADA branch audits. to the BDS providers for assistance. The BDS This service was contracted to UCAA in the providers also assisted the agro-input dealers past. The opportunity to have face-to-face visits with filling out the forms and making linkages throughout all of UNADA’s 78 local branches to the potential suppliers. These opportunities provided an opportunity for the service providers and others generated additional business for to demonstrate their usefulness to the potential the BDS providers. dealers’ clients. The service providers, who worked in teams of two and were supported by a UNADA field officer, were also tasked to train the Services provided to agro-input dealers branches in basic bookkeeping and association Marketing plans and demonstration plots management. They also discussed the other Service providers assisted agro-input dealers in services they could offer with prospective clients. developing marketing plans to grow the demand Approximately 490 dealers were consulted during for their products. They also helped dealers the course of the audit. establish and manage demonstration plots to show Paying for services how inputs can be used for maximum benefit. The service providers submit a price quotation to Business planning agro-input dealers, and the fee is often negotiated Most dealers in Uganda did not see the need between the service provider and the dealer. Upon for formal planning or paying someone to help completion of the agreement, the dealers pay them plan. However, because a business plan the service providers directly who then provide is a condition for appointment as a registered monthly reports to AT Uganda. AT Uganda then distributor by some input manufactures, dealers pays the service provider an additional 30 percent have asked service providers to help them with after verifying the quality of the work done and business planning. At least 28 dealers have payment made by the dealer. This acts as a partial developed business plans, paying BDS providers subsidy and provides a means for the service about 60,000 Ugandan shillings (approximately providers to test services and offer them at a lower US$30) for these services. price to dealers. Some service providers adopted a time charge, with day rates ranging between Marketing of agricultural inputs US$2.50 and US$6. Other service providers charged a piece rate. For example, the charge for The biggest challenge that agro-input dealers production of a business plan is up to US$35. identified was marketing of agricultural inputs. Agro-input dealers were willing to pay BDS providers to help them access difficult The role of AT Uganda markets, such as the government’s National Agricultural Advisory Service (NAADS) program, AT Uganda contracted a full-time BDS specialist because part of NAADS’ work involves procuring to oversee the performance of the BDS providers, agricultural inputs and distributing them to further enhance their capacity for service delivery farmers under a revolving credit program. Two and increase the visibility of BDS among agro- BDS providers succeeded in assisting their input dealers. The role of AT Uganda also involved clients to enter this market. monitoring service quality and user satisfaction and technical backstopping. However, due to Soil testing services weak management, UNADA was not as active in promoting the BDS providers among its members. Farmers realize the importance of soil testing in deciding which fertilizer to use. As a result, some

48 A Guide to Strengthening Business Development Services in Rural Areas

BDS providers received specific training to be able documentation to registrar. AT Uganda has also to offer this service to farmers. At least 120 farmers devoted a page on its website to BDS. in Serere District paid US$5 for soil testing. Increased use of inputs by farmers The question on how provision of prioritized BDS Successes and challenges to agro-input dealers has in turn encouraged Entrepreneurial and technical knowledge farmers to buy more inputs is at the heart of the project. The extent of farmers’ willingness Developing the confidence of the service providers to adopt improved practices and purchase the to approach dealers and offer their services to recommended inputs has yet to be assessed. them takes time. Similarly, dealers need to be encouraged to see the value of BDS that are not directly linked to immediate financial gains. Best practices and insights These two factors slowed the pace of interaction between service providers and the agro-input Introduction of service providers to dealers dealers, especially at the beginning of the Deliberately planned introduction of service program. Service providers require continuous providers to potential clients (the agro-input backstopping. They need hands-on training as dealers) was critical. This should be done in each assignment is different and challenging. such a way that the service providers are visible from the beginning and not seen to be associated Widening the BDS providers’ income base with the donor. In the AT Uganda case study, The ability of BDS providers to generate sufficient service providers were introduced through routine business to earn a living is an ongoing challenge. dealers’ meetings but the service providers AT Uganda has encouraged them to expand their themselves also did immediate follow-up. business by marketing their services to other clients as well, but without losing focus on the Time and support demands from their main agro-input clients. It takes time for BDS to be accepted by dealers and other small and medium enterprises in Competition with free services Uganda. It is therefore important for future Agro-input dealers, like other small-scale BDS projects to support service providers for enterprises, are used to receiving free services significant periods of time (at least three years) from donors and governments. They often ask as opposed to short-term interventions. Service why they are required to pay for these services. providers need to be encouraged to invest in developing their skills even if they have to pay for Service provider performance such trainings themselves. Of the 28 service providers trained, 4 submitted regular reports on their activities with Broad product offering agro-dealers, and 16 are doing some tasks The tendency to focus BDS on narrow products independently. Two have become trainers for and markets makes the business less attractive to Uganda Manufacturers’ Association and for the service providers and may unnecessarily reduce Uganda Cooperative Alliance, while the rest have their earning potential. Development efforts moved on to work in other sectors. must broaden the market for BDS, and service providers need to see a career in BDS in order to Association of BDS providers devote adequate time and resources. The service providers have come to realize that the market potential for their services is great. Willingness to pay They also recognize that they could do more Where BDS is addressing a real need, agro-input business if they were better organized and had dealers and other small and medium enterprises more visibility across the nation. They have would be willing to pay for the service. According therefore decided to form an association of BDS to dealers, real needs seem to be directly linked providers with the objective of raising their profile to immediate profits. Services that are seen to and advertising their services collectively. AT increase sales are easy sells, but many programs Uganda is helping them complete the necessary advocate for services like business planning that dealers cannot directly link to improved profits.

49 Case Study 2.3 Building Second-Generation Market Information Systems By Shaun Ferris, Catholic Relief Services, and Peter Robbins, Commodity Information Services

Providing smallholder farmers in developing considered a public good, so the information is countries with accurate and relevant market often disseminated freely. information is a major challenge in efforts to improve their competitiveness and efficiency Types of market information in agricultural markets. In Africa, few farmers There are three main types: or service providers have access to such information. One reason for poor information •• Traditional market information systems services is that 30 years ago governments in that provide regular spot prices of agricultural many developing countries ran commodity goods to the farming community. marketing boards that paid farmers a fixed •• Market intelligence that provides forecasting price for their goods, and therefore no market- information on a narrow range of products and based information was needed. When market that mainly supports the needs of traders. reforms led to the removal of these marketing •• Market linkage information that focuses on boards, governments realized that farmers a single product and specifically aims to bring would now need market linkage support in the together buyers and sellers. transition to a well-serviced open market. Most government transition plans therefore included Why market information systems are a provision for public marketing information valuable to market chain actors services. Unfortunately, virtually all of these first- Farmers who are ignorant of market conditions generation state-operated market information are prey to traders seeking to push down prices. systems (MIS) failed to provide relevant and Market information assists farmers in their timely information to farmers. A combination of negotiations with traders, enabling them to make poor service delivery, lack of government support more informed decisions on where and when to and donor fatigue meant that the majority of sell their goods. Access to price trend data allows these services ceased to operate. farmers and service providers to analyze product price movements and make decisions on which However, in the past 10 years new second- crops to grow, and when to sell or store their generation MIS have emerged, which are crops based on seasonal price variation. Financial testing new methods to provide farmers with institutions use market price information to much-needed information about their market monitor the health of the agriculture sector opportunities. This case study is focused on MIS and to assess risks of lending for production that have emerged in the past decade in Africa, loans, speculative storage and trading options. with a focus on developments in Uganda. Policymakers and researchers use both current and historical market information to monitor Market information systems crop and food security conditions and plan for market investments and interventions. Due to An MIS as an organization that regularly the range of potential users and uses of market provides information related to agricultural information, there is increasing demand for markets to producers and traders. The purpose access to such data. But the data is only useful if of the service is to increase the efficiency of it is reliable, accurate and timely. agricultural markets and help overcome market failures that are based on weak and asymmetric The benefits of a successful market information access to information. These services are usually service are that it:

50 A Guide to Strengthening Business Development Services in Rural Areas

•• Strengthens farmers’ bargaining position. officer with a motorbike, who travelled to the •• Increases competition. major markets within a district to gather prices •• Lowers transaction costs and time. and discuss market conditions with farmers. •• Assists in matching supply with demand. The market information was then relayed to the •• Increases the volume of trade. farming community via two weekly 10-minute FM •• Improves the rural economy. radio broadcasts in the local language at a time •• Strengthens food security. when most farmers were free to listen. This pilot •• Assists government planning. project, funded by the Centre for Agricultural •• Boosts economic activity. Technical Assistance (Netherlands), included three separate districts, which were managed by Few first-generation MIS achieved any of one centralized analyst in Kampala. these goals as they were challenged by overly bureaucratic government protocols and limited The weekly radio bulletins were supplemented options for data dissemination. However, second- with a radio drama series titled “Market to generation MIS have made a number of changes Market” to help farmers understand and use the in how to collect, manage, analyze and deliver market information they received. The script for information to customers. The following section this radio series was based on the book written reviews how different types of second-generation by Andrew Shepherd called Market information MIS were developed in Uganda within the services: Theory and practice. The bulletins placed FOODNET project from 1999 to 2008.3 emphasis on how to use market information and the benefits of farmers working together in groups and selling collectively. Market information was Developing market information systems provided free of charge to both farmers and the in Uganda radio companies. Major costs for the service were staff, radio airtime and transport costs for market Three levels of MIS were designed to serve the visits and monitoring purposes. marketing needs of farmers, traders, processors and input suppliers in Uganda’s agricultural sector: The business model of this service operated on a public goods concept. Customers received the Local—aims to meet the specific needs of •• information as a public good without charge and smallholder farmers and traders at the district governments or donors paid for the service. or cluster of districts level. •• National—provides a regular overview of the National market information service countrywide market status targeting government, national traders and food security agencies. A national Ugandan MIS was developed in •• Regional—aims to support the needs of the collaboration with the Ministry of Trade, the formal and informal traders involved with cross- FOODNET project (funded by the U.S. Agency border trade of high-volume staple commodities. for International Development) and private communication firms. The national MIS in Local market information service Uganda collected commodity data on off-lorry, wholesale and retail prices for 28 agricultural Local MIS in Uganda provided regular and commodities from 16 districts, with a target timely price data on the top 10 to 15 dry staple audience of 5 to 7 million farmers. District-level products, collected from 5 to 10 markets within prices were collected on a weekly basis, and a defined geographical area, such as a district prices were collected for the same commodities or cluster of districts. The purpose of this on a daily basis from three terminal markets service was to determine whether a subnational in Kampala. In addition, in partnership with institution, such as a local government agency, other food security and value chain-focused local entrepreneur, bank or nongovernmental organizations in Uganda, the system collected organization (NGO) could develop a viable local trade volumes in major commodity markets, information service. The target population within demand and supply conditions, and the quality of a district was approximately 50,000 people. The the produce in the markets. Weather conditions district service was operated by one marketing in selected districts and production and price projections of major staples were also captured.

3. FOODNET: a regional marketing and processing re- At the district level, ministry trade officers or search network established under the Association for NGO staff collected information. These market Strengthening Agricultural Research in Eastern and Southern Africa. agents received intensive training on how to

51 A Guide to Strengthening Business Development Services in Rural Areas collect market price data and were monitored •• Farmer associations, transporters, closely for two years to ensure prices were development agencies, government accurate. The market monitors were paid policymakers and food aid agencies. US$25 per month, which included the price of sending the data to the analysis unit, where two Market intelligence requires higher resolution analysts processed it. Within two days of receipt, of data than a traditional MIS, with more price information was disseminated to farmers through and market news gathered on a narrower set of 15 district-level FM radio stations in all the major products and from fewer market points; in this languages as well as through mobile phone SMS case the market intelligence work focused only on on three national telecom carriers, email, Internet the two most traded crops: maize and beans. and fax. Key features of the RATIN service: In 2008, the national MIS was privatized in Price data came from the national MIS but an open tender process and is now operated •• only used terminal market information, (i.e., by FIT Uganda. With privatization, the service data from the largest two or three wholesale has shifted away from using radio as the main markets within a country). means of dissemination to a web to mobile Data collectors based at key border crossings phone SMS-based service. This shift in approach •• monitored the flow of cross-border trade significantly reduced the number of people volumes of maize and beans and gathered data who receive the information but also reduced on the number of trucks of maize and beans the costs of providing it. The new service has a crossing the border. This information provided website that provides opportunities for buyers critical information on formal and informal and sellers to place offers, but this option has trade flows. not been widely used. •• Trade table meetings were held monthly The original business model was developed as or every two months. These meetings a strategic public goods service, catering to the included leading production, marketing needs of millions of farmers. A major innovation and trade experts who brought together the in terms of its operation and governance was latest information and thinking about crop that management was outsourced to a project, performance, stocks, imports and harvests, under the auspices of the Ministry of Trade. After and made up the basis of a crop forecast seven years of donor funding as a public good, committee. Information from these meetings a decision was made to reformulate this service was used to develop a “trade position” which is into a private good over a five-year period. The based on current demand, stocks, prices and new business model is to offer the MIS as a free flows of produce, for that month and to provide good to farmers, but finance the service through a rolling “food balance” projection, which is a income streams from a range of supporters. Ideas measure of the country’s food supply during on possible income streams include subscriptions a specific time period. The food balance sheet from NGO projects and private companies, shows the food items for human consumption, advertising, special data services for consultants along with how it is produced, used, imported and income from SMS services. The process of or exported, and how it benefits the society. An transitioning from a public to a private sector e-newsletter was sent to all 1,500 registered program is ongoing. stakeholders on a monthly basis and a hard copy market news bulletin in English and The regional market information service Swahili was sent to trader associations. The regional market service, Regional Agricultural The business model of this service was Trade Intelligence Network (RATIN), was established as a partnership between three developed to enhance regional trade in four regional programs: FOODNET, Famine Early countries in East Africa: Rwanda, Uganda, Kenya Warning Systems Network (FEWS NET) and the and Tanzania. The main clients for the regional Regional Agricultural Trade Expansion Support service were: (RATES) project. It was financially supported by donor contributions. The regional market Small- and medium-scale commodity traders •• intelligence website was migrated to the Eastern handling between 50 metric tons (MT) and African Grain Council in 2008. The service is a 100 MT. public good providing free data. •• Larger traders handling more than 500 MT.

52 A Guide to Strengthening Business Development Services in Rural Areas

Costs and income streams for the different private. In the Ugandan MIS case, the national services MIS was an outsourced team of staff that included 20 part-time data collectors, 2 analysts and a Each of the services—at local, national and manager who worked with a range of private media regional levels—requires different business companies. Small, versatile teams cut costs and plans, financing structures and time frames. enabled data to be rapidly compiled, packaged and The information in Table 1 provides start-up and prepared for dissemination. recurrent costs, target audience type and possible incomes streams. Focus on reliability and quality Impact of the services Second-generation MIS must provide regular, reliable and accurate market data. This requires Two impact surveys were conducted to evaluate the service to be focused on a limited number of

Table 1. Scope and scale of market information systems in Uganda.

Item Local National Regional •• $200,000 (basic price data) Start-up $500,000 to $700,000 (with $10,000 per district •• $250,000 cost (US$) market news and marketing •• information) Recurrent •• $50,000 to 100,000 (basic) annual cost $5,000 per district •• $200,000 to $300,000 (with •• $100,000 to $150,000 (US$) marketing information) 5,000 informal and formal Client base 1 to 2 million farmers 20 to 30 million farmers •• •• traders Value chain subscription •• Embedded service of Monthly charge •• •• regional association of Income Advertisements SMS income •• •• traders streams Local stockists Advertisements from input •• •• Commission on Internet- suppliers •• based trades •• Syndication of radio stations

Source: Ferris, S. & Robbins, P. (2004). Developing marketing information services in Eastern Africa: The FOODNET experience. ASARECA Monograph 9. Ibadan, Nigeria: International Institute of Tropical Agriculture.

the benefits of the local and national MIS in markets and products. In Uganda, 28 products from Uganda. They found that farmers used the 16 markets were collected under the national MIS. information to negotiate prices and make decisions To ensure data quality, the first two years of the on what to produce, when to sell, where to sell and project included intensive training and monitoring of whether to store. Income gains for farmers using field staff. After that period, markets were routinely MIS are difficult to attribute. Of the farmers who evaluated to ensure that enumerators were gathering regularly received the information, 58 percent said the correct information. they were able to use the information to improve their incomes. Income gains were estimated to be Farmer segmentation in the range of 16 percent for individuals and up to 24 percent when farmers combined the use of The type of service and how information is market information with collective marketing. offered depends on client types and the level of modernization of the marketing system. As discussed in Part 1 of this guide, typical farmer Best practices and insights segmentation for main grain crops such as maize will be: Independent management 1. Commercial smallholder farmers who sell Second-generation MIS are rarely managed entirely more than 75 percent of their produce (1 to by government agencies. Instead, they tend to be 2 percent) public–private partnerships and increasingly fully

53 A Guide to Strengthening Business Development Services in Rural Areas

2. Semi-commercial farmers who sell less than Data management 50 percent of production (10 to 15 percent) Second-generation MIS started using Microsoft 3. Farmers who sell or buy depending on the Excel spreadsheets to collate and manage their season (20 to 30 percent) information. But in the past several years, 4. Farmers who are net buyers (40 to 50 percent) most have progressed to Microsoft Access The national MIS targeted farmers in segments and MySQL databases. The leap from static 2 and 3, with training on how to understand Excel spreadsheets to customized database and use market information reaching all farmer management platforms is often difficult, and the segments. The RATIN service, however, provided cost of developing and maintaining these software forecast information and targeted only the top systems is high and requires specialized staff. two segments. Most companies outsource the development of data management platforms to specialist Cost structures companies and, where available, buy existing software systems. Due to the size of the market, The cost of first-generation MIS operated by there are few out-of-the-box MIS products government agencies ranged from US$300,000 available. However, several companies are actively to US$500,000 per year, and much of this cost pursuing the development of standardized MIS was for staff and logistics. The high costs of these management products, such as those being services made it difficult for governments to developed by Esoko, FIT and Frontline SMS. operate and donors grew tired of high recurrent costs with diminishing service quality. The Radio-based dissemination of data second-generation Ugandan MIS were able to reduce costs over time from US$100,000 per In Uganda, it was found that from 2000 to year to US$60,000. The structure of the costs 2007, rural radio was the most effective means was approximately 25 percent for staff, 25 of delivering information to the large number of percent for logistics and 50 percent for media. farmers. In many countries, this may continue The most recent types of MIS are seeking to to be the case as rural radio overcomes literacy overcome recurrent donor requests by shifting issues and enables mass coverage. However, into private services. The costs of establishing radio dissemination is costly and in most cases a private service varies a lot! Depending on the is limited by a one-way information flow. The type of service, establishing a fully private model use of call-in options and call centers to the may cost US$500,000 to US$1 million to set up radio companies was one way of providing two- and ranges from US$200,000 to US$300,000 way communication. Until now, radio has not per year to operate. If an entrepreneurial team provided effective avenues for income streams. forgoes a large part of their salary options in the In Uganda, costs of radio dissemination were first years, these costs can be reduced, but the reduced by bulk airtime purchases, and co- goal is to quickly establish clients and income investing in radio stations with agreements for streams that achieve profitability within a two- free airtime. Ambitions for selling market news to to four-year period. Often the approach is a advertisers did not materialize. combination of private managers who offset early costs with private investments and public project Mobile phone systems investments and grants. Current trends for MIS are to replace radio with dissemination of information via mobile Use of information and communications phone systems. This has become possible with technology the ubiquitous spread of mobile phones. The Second-generation MIS are making significant advantage of the phone as a dissemination gains in efficiency through innovative technology, channel is that farmers can receive information software management systems and mobile directly. If they are registered into a network, the communications. Such technologies have enabled information can be customized to their needs. the data management team to overcome major A key advantage of mobile technology is that logistical, data management and communication it offers two-way communication. This means challenges. Most new MIS are now using SMS as that market data can be sent to individuals who the means of targeting information to networks of can store and share market information at their registered farmers. convenience. Once an individual is registered, an MIS provider can send not only price data, but also information about input suppliers, product

54 A Guide to Strengthening Business Development Services in Rural Areas offers, weather conditions, finance, agronomic competitor pricing and financial flows. This will advice, and even offers to buy and sell. enable companies to provide embedded market information to their buying agents and farmer New business models for MIS customers. The advantage of this approach is The most recent MIS providers are exploring that it provides a financially sustainable business ways to establish multifaceted business models model that offers a seemingly free service to that support different customers. This would farmers. However, it requires that farmers link include producer networks that receive free into such buyer networks to benefit from the basic information and formal trading clients market data available. and NGOs that pay a subscription to use the information service and receive more customized services. Some models are also being developed Further information that require farmers to pay for regular market Kleih, U., Odwongo, W., & Ndyashangaki, C. (1999). information; for example, in India the Reuters Community access to marketing opportunities: Options for remote areas. Uganda case study. Market Light team provides farmers with 10 National Resources Institute. SMS messages each month for a fee of US$1 per month. This approach is gaining interest, Shepherd A. W. (1997). Market information services: Theory and practice. Rome, Italy: Food and although fee-for-service models are unlikely to Agriculture Organization of the United Nations. be accessible among the poorest farmers. The Ferris, S. & Robbins, P. (2004). Developing marketing aim of subscription-based information systems information services in Eastern Africa: The is to offer formal traders and input suppliers an FOODNET experience. ASARECA Monograph 9. opportunity to use mobile communications as Ibadan, Nigeria: International Institute of Tropical a means of monitoring their agents and rural Agriculture. http://www.iita.org/c/document_ stores through a web-to-phone system that library/get_file?uuid=a44e210d-2ec5-4ebf-94fc- 63af52706595&groupId=25357 tracks inventory levels, logistics and fuel usage,

55 Case Study 2.4 Agricultural Extension Services in Africa By Shaun Ferris, Catholic Relief Services

For many developing countries in sub-Saharan agents have witnessed increasing demand for Africa, the agriculture sector is the main source more business support, and this has defined many of employment and income in both domestic and service providers into production and/or agroexport markets. However, few governments in enterprise categories. The following examples from these agriculturally dependent economies meet Uganda, Australia and Zambia highlight trends the Common Africa Agricultural Development and options in extension systems. Program goal of investing 10 percent of their GDP in their agricultural sectors, commonly known as the Maputo Declaration. As a result, millions of The evolution of extension services in smallholder farmers have no access to extension Uganda services. Fifty years ago, most countries had In the 1960s, Uganda had a strong and well- robust extension services, but these services were established agricultural extension service to eroded by a combination of structural adjustment, support export commodities. This extension declining terms of trade for agricultural goods and service and the associated markets were broadening sector demands on government coffers. decimated during the disruption of the Amin This case study focuses on the changing face of years in the 1970s. In the early 1980s, the extension services with examples of new norms in World Bank introduced the Training and Visit agriculture, which combine government extension, extension system to rebuild agriculture, but public–private partnerships for extension and investments were inadequate in successfully purely private options. rebuilding an extension program at the national level. In 1989, Uganda’s government formally What are agricultural extension dissolved agricultural marketing boards, which led to the rapid collapse of farmer cooperatives services? and the associated input supply and banking Agricultural extension services cover a broad sectors. To compensate for these losses, a range of advisory, information and training National Agricultural Research Organization services that support a range of crop, forest, (NARO) was established and a policy of “unified livestock and fisheries products. Extension agents extension” aimed to place at least one general tend to support specific areas, such as field extension agent in every sub-county to support crops, horticultural crops, tree crops or livestock. approximately 5,000 people. Although the They provide farmers with information that purpose of the reform was to streamline efforts includes agronomy and competitive production and reduce costs, the result was a substantial systems, pest and disease control, input options, weakening of the extension services. more effective organizational structures, post- harvest handling, marketing options, finance and Since then, the quality and effectiveness of business strategies. government extension services have steadily declined, with large numbers of staff collecting a Agricultural extension services also provide a salary, but with insufficient funds to support field direct link between national research and farmers. activities. This process has been repeated across Extension agents play a key role in enabling Africa and resulted in agricultural stagnation. farmers to test and use new technology packages Figure 1 shows how the increase in cereal yields that are appropriate for their local climate, has stagnated over the past 30 years. This is infrastructure, investment capacity and market a tragic outcome for the farmers and a poor opportunities. In the past 10 years, extension reflection on development processes.

56 A Guide to Strengthening Business Development Services in Rural Areas

implement extension services. These new service providers include international nongovernmental organizations (NGOs), local NGOs, cooperative agencies and farmer organizations as well as private consulting firms and contractors. Since the 1990s, shifts in funding sources meant that greater emphasis was placed on food crops and on serving poor farmers with less investment in cash crops. This shift in investment reflected donor strategies and also indicated how services were adjusting to support farming community demographics.

Farmer segments The agricultural sector in Uganda includes a range of actors who can be categorized into four major types:

1. Commercial farmers who sell more than 90 percent Figure 1. Yield gap for cereals between sub-Saharan of their goods to the market (1 to 2 percent) Africa and other regions. 2. Farmers who own assets and regularly sell Source: The World Bank. (2007). World Development surplus to markets (10 to 15 percent) Report 2008: Agriculture for Development. 3. Farmers who are occasionally connected to Washington, DC, USA: The World Bank. markets, depending on rainfall (20 to 30 percent) 4. Farmers who buy more than they sell and depend Diversity of extension service providers on labor markets for income (40 to 50 percent) The vacuum created by the loss of formal government extension led to increased civil and To meet the needs of these farming segments, donor funding to nongovernmental agencies that service providers have adopted a range of strategies, as shown in Table 2.

Table 2. Typology of agricultural extension service providers, clients and their roles in Uganda.

Agricultural Service Segment Main Clients Role Provider Address critical problems or Estates, export farmers, 1 Consultants opportunities in the business and/or commercial farmers marketing of commercial farmers. Contractors, Progressive or “asset-ready” Focus on more productive farmers international research farmers who have land, with assets and skills that are projects (e.g., access to water and basic seeking advice on use of new 2 Consultative Group technologies and who are technologies and market linkage. for International innovative, keen to try They often work on more commercial Agricultural Research) new technologies and have and export products. and private companies access to markets Ministry of Agriculture Provide farmers with advice on extension staff, National production practices and problems Poor but “asset-ready” Agricultural Research with pests and disease. In some cases, 2 farmers who are able to Organization and the government extension officers are co- take on new technologies National Agricultural opted by nongovernmental organizations Advisory Service extension to work with poor farmers. Chronically poor farmers Provide safety net options, food aid, Missionaries, with little assets who are free seed, tools, fertilizer and training nongovernmental 3 net food buyers, live in in basic production methods. After organizations and the remote areas and have emergencies are stabilized, support Ministry of Agriculture limited market access shifts to productivity.

57 A Guide to Strengthening Business Development Services in Rural Areas

Challenges National agricultural advisory services Providing extension services in poor countries In 2001, the World Bank and government of such as Uganda has a number of challenges. Uganda established the National Agricultural As populations expand, farm sizes diminish, Advisory Service (NAADS), which aims to productivity declines and the average age of transition public extension into a privatized farmers increases. system. This transition program will occur over a 25-year time frame, with the first 7-year period Given these challenges, donors are trying to find costing US$108 million. The NAADS process new ways of providing more effective services to requires that farmer groups devise plans for farmers, as a means to support what is effectively an enterprise and make requests for services a large agrarian safety net and to identify ways to through sub-county committees. The committees attract youth back to the land. Current strategies tender for contracts with local service providers are seeking public–private options or private who compete to supply advice to farmers. The solutions rather than government-led options. NAADS process aims to promote farmer groups as However, governments typically want government- units of learning and collective marketing and to controlled solutions and many government staff build the capacity and demand for local advisory do not trust the private sector. agents. According to the initial agreement, farmers contribute 2 percent of costs while the government covers 18 percent and donors fund Types of extension services offered to 80 percent. The government plans to retrench or smallholders in Uganda not hire new government extension staff to enable NAADS to expand. However, the retrenchment has Public research been slow, which has created tensions between NARO is the agency mandated to provide research NAADS and the Ministry of Agriculture, and products for crops, fisheries, forestry and progress with funded service provision to farmers livestock markets. In Uganda, NARO is mandated has suffered in terms of quality and scale. to ensure dissemination and application of research results. For the past 20 years, most Nongovernmental organizations funds for NARO have been focused on raising There are probably more than 1,000 NGOs of the production of food crops for low-income various sizes supporting farming communities farmers. This means that NARO generally has in Uganda. This array of agencies includes more few linkages with the private sector. Its relevance than 20 large international NGOs, with annual to the commercial sector, other than coffee, is budgets exceeding US$3 million. Such NGOs limited, leading to concerns about NARO’s lack of manage major projects that deliver food, shelter, economic and marketing capacity. Despite these microfinance, education, water and sanitation problems, NARO is a relatively strong research and agricultural skills from basic to fairly organization within East Africa and was selected sophisticated value chain upgrading to rural for leadership support by the World Bank for communities. Although NGOs are chastised for cassava research. being highly input-driven, giving away free assets such as seed, tools and fertilizers to communities, Private research more professional NGOs support investments NARO’s emphasis on food crops has led to in market-oriented agricultural interventions commercial sectors undertaking their own that seek to build the capacity of famers and research. Several seed companies are now their organizations and create competitive, introducing new varieties of the most commercial productive and profitable farming enterprises. crops, including hybrid maize, cotton, beans, NGOs also seek to support farmers and business soybeans, sunflower and horticultural crops from development services through fee-based services, other countries. They are testing these varieties smart subsidies and vouchers, rather than in small research plots prior to registration, providing free assets and services directly. certification and sale to farmers. Similarly, the high-value horticulture sector has collaborated, Contractor projects with support from donors, to form a small Since 1991, the U.S. Agency for International analytical team to research a range of issues that Development has funded three major agricultural challenge the sector. productivity projects in Uganda: Investment in Developing Export Agriculture (IDEA) project,

58 A Guide to Strengthening Business Development Services in Rural Areas

Agricultural Productivity Enhancement Program applied successfully in Uganda in the maize, (APEP) and Livelihoods and Enterprises for cotton, upland rice, coffee and sunflower sectors. Agricultural Development (LEAD) program. Each had annual budgets of approximately Private and public–private sector US$3 to US$5 million, with the aim of boosting extension services agricultural production and competitiveness. In addition to government- and donor-led approaches, the private sector is increasingly The IDEA project introduced a value chain involved in supporting extension services in approach to a small but professional extension Uganda. In the formal sector, there are many team that worked with input suppliers, farmer examples of companies who support farmers cooperatives, traders, processors and exporters within specific value chain projects, and an to upgrade a limited number of value chains. The emerging trend is to develop public–private project enabled Ugandan high-value horticulture extension services to expand production and farmers, specifically flower farmers, to increase increase quality. For example: their land under cultivation from an average of 5 to 10 hectares in 1994 to 180 hectares by 2005, •• British American Tobacco field managers with a crop value of US$32 million. In the higher- provide intensive production and post-harvest value sector, another initiative increased the handling training to their tobacco growers to value of vanilla exports from near zero to US$5 achieve production targets. This is an effective million per year. approach as they are virtually the only tobacco leaf buyer in the market, so investments are For field crops, the project used demonstration more easily recovered than in more competitive plots and intensive farmer training to increase markets. maize and bean productivity to supply national Uganda Breweries Ltd. worked with IDEA/ and regional food aid markets and also to target •• APEP in Eastern Uganda to purchase barley regional commercial markets. Capacity building from farmers on a contractual basis. The was incremental and focused on introducing new brewery entered this arrangement to support varieties, then fertilizer and zero tillage, but all a new, lower-cost beverage that used only with a clearly defined market linkage strategy. domestic ingredients, rather than imported The IDEA team was pivotal in working with value barley. The aim was to build supply chains chain partners to (1) upgrade the seed sector, (2) using methods that shared extension and establish small-scale fertilizer supply points, (3) storage costs. The goal was for the extension to encourage banks to test farmer lending options, be maintained by the brewery when the public (4) revitalize market information and (5) build support was withdrawn. demand through traders and the United Nations Mukwano Industries Ltd., the main oil and World Food Programme. •• soap processor in Uganda, worked with the Over the project period (1995 to 2005), annual IDEA project to increase sunflower production production of maize increased from approximately as an alternative to palm oil imports. Farmers 300,000 metric tons (MT) to 800,000 MT. Key were provided with hybrid seed and organized success factors in this project included the skills to supply Mukwano’s processing factory. The of the small expert team, the use of value chain farming community recognized this as a sound methodology, and the linkage between food business opportunity and responded quickly aid procurement and production investments. by investing in expanded oil seed production. Major challenges included the weak capacity of •• Cotton ginners. Until 2005, farmers in farmer groups. The Cooperative League of the Uganda sold their cotton to the highest USA (also known as the National Cooperative bidder, regardless of who supplied them with Business Association or CLUSA) was integrated seed, fertilizer and chemicals. Consequently, into the program to provide and scale up a more ginners stopped providing input services and disciplined approach to strengthening farmer the sector rapidly declined. To redress this groups. The CLUSA approach is highly market downward spiral, the government forged an driven and focused on skills transfer rather than agreement with farmers, ginners and NGOs input handouts. CLUSA builds farmer groups such that farmers within a specific zone agreed with clear business goals that are monitored by to supply one ginnery, and ginners agreed paid extension agents who train and evaluate to provide production services to the zone’s groups according to their business performance. farmers. The aim of this work is to restructure The CLUSA collective marketing model was the supply chain and once organized, to hand

59 A Guide to Strengthening Business Development Services in Rural Areas

over the role of the NGO-based extension that actors along the value chain understand, services to the commercial cotton sector. articulate and agree on critical constraints and develop viable plans to increase their overall competitiveness and profitability. Although this New approaches in extension approach has not been tested in an emerging The experiences in Uganda highlight the diversity economy, it has merit in being able to leverage of approaches being used to improve services to investments from the national government with farmers and demonstrates the value of building private sector funds. relationships between the public and private sectors. Other countries as disparate as Australia Agent-led approach in Zambia and Zambia are also experimenting with different In Zambia, the Production, Finance, Technology types of public–private and solely private forms of (PROFIT) project is working on an agent-led service provision. extension service designed to assist specific value chains in developing low-risk, scalable business models that provide smallholders with products, services, knowledge and innovation. Agents are trained on how to provide farmer groups with production and marketing support and ways to aggregate orders for input and output markets. The agent then helps farmers connect with the private sector so they can:

•• Increase their productivity by having the right inputs at the right time. •• Increase income levels through more affordable purchase of agrochemicals and achieve economies of scale under collective marketing.

The agent-led system requires intensive start-up support and training. However, once established, the agent should be in a position to receive an income based on a commission from the input and output firms. The agent approach is being advocated as a complement or alternative to traditional government extension, with the agent providing a powerful linkage between private input and output services and remote farming Figure 2. Extension model based on Australian, communities. Most government extension services public–private sector arrangement for still supply knowledge and have not yet been financing and management. successful in providing farmers with a package of technologies nor with access to input and output Australia’s extension model markets. The agent system is based on providing In Australia, the management of public extension all four components: aggregated inputs, knowledge, services has been tendered to a private sector innovation and access to output markets. management team. This management team has a mandate to invest its annual budget across a Rise of the Internet limited number of value chains. Value chain fund The ability to share information through mobile managers provide resources to various chain devices is a major global innovation that is managers based on the quality of proposals they positively impacting extension service provision. receive for upgrading specific crops. Proposals are Several companies and agencies now use mobile based on the needs of the value chain members technology to assist farmers with information who work together to prioritize specific areas that related to weather, disease outbreaks, input will help consolidate and grow their value chain. locations products and costs, finance options, This method requires close collaboration between market information and advisory services. For researchers, input suppliers, farmers, buyers example, in Kenya KenCall established a help desk and the investment community. It also requires service that enables farmers to call and talk to

60 A Guide to Strengthening Business Development Services in Rural Areas experts who can assist with their specific problems. in a pre-competitive manner to boost the The Food and Agriculture Organization of the overall industry. United Nations also built a large online information •• Private extension services tend to focus on portal that allows farmers to send questions and the most commercial farmers producing photos seeking advice on specific agricultural higher-value crops as they have the monetary issues, particularly related to pests and diseases. resources to pay for such services. The Centre for Biosciences and Agriculture •• Crowding out private providers. One of the International (CABI) has a community health doctor difficult decisions for extension service approach based on their Plantwise information providers is to find ways to zone services portal. Mobile phones and Internet connectivity so that free and subsidized services do not have also promoted the re-emergence of market compete with private services. information systems (Case Study 2.3). Although the •• Value chain approach. Extension services have use of mobile phones and linked Internet services benefited from taking a value chain approach by public extension agencies is still limited in most to their support, providing production developing countries, it is a rapidly emerging area. information within an agribusiness framework. This ability to access information will radically For instance, the Australian extension model change their ability to reach farmers and provide has potential for significant collaboration them with improved services. between public and private sector partners. •• Use of the Internet. All types of service providers can increase their reach through Best practices and insights Internet communication systems. Some of the most relevant lessons for development organizations include: Further information •• Public extension services exist in many Benin, S., Nkonya, E., Okecho, G., Pender. J., countries and government staff are often well Mugarura, S., & Kato, E. (2005). Quantifying the experienced, but they do not have sufficient impact of the National Agricultural Advisory Services in the Uganda rural livelihoods. Household Survey. funds or training to provide effective field Washington, DC, USA: International Food Policy services. Engaging in public extension services Research Institute. generally requires additional financial support Dorward, A., & Kydd, J. (2005). Making market systems in terms of per diems or logistics allowances. work better for the poor (M4P): Promoting effective, •• Public–private extension services offer an efficient and accessible coordination and exchange. alternative that is more flexible and could Presented at Making Markets Work for the Poor, cover the needs of poorer farmers. This February 15–16, Manila, Philippines. arrangement generally focuses on single Food and Agriculture Organization of the United value chains—public support is typically Nations (FAO) & Programme de développement des for farmer organization and productivity services financiers ruraux (PDSFR). (2006). Guide de Bonnes Pratiques du Warrantage au Niger. FAO and enhancement, whereas private support is PDSFR. generally for providing market linkages. Wood, M. Agent approach to extension services. PROFIT Over time, private services can take over Project Zambia. from public extension programs if the buyer Ferris, S.; Robbins, P.; Best, R.; Seville, D.; Buxton, A.; is able to capture the production gains made Shriver, J., & Wei E. Linking Smallholder Farmers through their own investments, or if they to Markets and the Implications for Extension and are willing to collaborate with other buyers Advisory Services. MEAS Discussion Paper 4. 2014.

61 Case Study 3.1 The Role of the Development Facilitator in Building the Capacity of Smallholder Farmers to Link with Modern Markets: Calamansi Growers in the Philippines By Pedro Terry R. Tuason III, CRS Philippines

Development agencies play an important role in time, farmers would prefer to leave the fruits the initial stages of establishing a foundation unharvested as they have no incentive to sell for agro-enterprise. Farmers need to be trained them. However, they still have to spend money on how to improve production, plan businesses for labor to gather the ripened fruits to prevent and strengthen their organization. Investment negative effects on the soil and the spread of is required in market research, value-adding disease. Yet when the price of calamansi is high, processing technologies, partnership building the potential for farmers to earn more income and financial planning, among other topics. This is lost due to several intermediaries along the case study relates how Catholic Relief Services supply chain. and local partners have facilitated the process of linking Philippine fruit farmers to new markets The calamansi farmers and laborers of Siay by providing enabling subsidies and grants to municipality have been partners with CRS address gaps and bottlenecks and build relations Philippines for almost five years. Over this time, with public and private sector service providers. a series of interventions have been made to help The farmers are closely involved at each stage of farmers in three target “barangays” (the smallest the process. In particular, their participation in administrative division) earn more from their financial planning and profitability analysis has calamansi harvest by building their capacity to made them more aware of production costs and sell fruit in urban markets. service fees that need to be covered to maintain their competitiveness. Phased interventions to link calamansi farmers to modern markets Calamansi and its income-generating Assessing product supply and demand potential for smallholder farmers In 2005, CRS and its partner nongovernmental The calamansi, an evergreen tree of the genus organization (Xavier Science Foundation—Xavier citrus and family Rutaceae, is one of the major Agriculture Extension Service) undertook a crops of the Siay municipality in Zamboanga baseline study and conducted market research Sibugay Province on the island of Mindanao in to assess the supply of calamansi and potential the Philippines. The tree is characterized by demand for fresh and processed calamansi fruit with a spongy or leathery rind and a juicy products. pulp, divided into sections. Rich in vitamins and minerals, particularly vitamin C, the fruit is The baseline revealed that most calamansi refreshing and nutritionally valuable. growers have between 0.5 and 1.5 hectares, with a few medium-sized growers with farms ranging Unlike in other parts of the Philippines, Mindanao from 3 to 14 hectares. Each year, farmers in the calamansi farmers have the advantage of being three target barangays produce approximately able to supply fresh fruits throughout the year. 6,000 metric tons (MT) of calamansi fruit. Despite this advantage, for most months of the year calamansi prices are low (US$0.75 However, they face several challenges in to US$0.85 per 27-kilogram bag). During this marketing their output. These challenges include

62 A Guide to Strengthening Business Development Services in Rural Areas improper harvesting practices, lack of insect •• Assists them to effectively organize into small and pest management, poor-quality packaging groups or clusters. materials, and limited infrastructure facilities •• Guides them in engaging markets that such as sorting sheds and temporary storage to provide them with more favorable trading consolidate shipments. High transport costs also arrangements that improve their incomes and hinder the potential of marketing calamansi; Siay secure their livelihoods. is far from urban markets and most farms are located in areas with poor road access. The eight steps that make up the clustering approach are: (1) site selection, partnership The market research first identified different building and working group formation; (2) actors in the market chain: there is only one product supply assessment and product major buyer of calamansi in Siay, and two other selection; (3) market chain study; (4) cluster buyers occasionally compete with the major formation; (5) cluster plan formulation; (6) buyer. From November to February, buyers test marketing; (7) scaling up and (8) cluster (called “viajeros”) come from Manila to Mindanao strengthening. Details of each of these steps for their supply of calamansi. In this period, are provided in The clustering approach to production of the fruit in Luzon and Visayas agroenterprise development for small farmers (CRS is severely affected by the annual typhoon and 2007, 2014). wet season. From May to November, calamansi growers closer to Manila have peak production, For each of the nine calamansi production and calamansi from Siay is left out of the market clusters that have been formed, a production plan because of high costs of transport. projects their anticipated output (e.g., kilograms of calamansi per month) and defines product In Manila, calamansi is brought for consolidation quality specifications. The plan also outlines a set and onward sale to the “bagsakan” or wholesale of production and product handling techniques markets that supply institutional buyers (e.g., agreed to by cluster members. schools, universities, hotels, hospitals and processors of ready-to-drink juices). For example, Each cluster has a leader who takes overall Ruvita Enterprises links growers to institutional responsibility for the coordination of product markets, and Gucila Marketing Enterprises and movements, schedules of harvest, consolidation Global Partners Inc. are interested in a calamansi and delivery. The assistant cluster leader takes puree product. charge of the implementation of production schedules and compliance with quality standards. The market research also identified the location Cluster leaders and their assistants have and costs of service providers, including: undergone business planning workshops to decide on and formulate business plans based •• Suppliers of plastic crates, packaging on the different market options. In addition, materials, cartoon boxes and other inputs, production and post-production practices such as Sanko Plastics. that contribute to either high- or poor-quality •• Land transport and haulers. products were traced. The practices that •• Shipping services in the main port areas of contribute to high quality were further improved Zamboanga City, Dipolog City, Ozamis City and practices that contribute to poor-quality and Cagayan de Oro City. production were changed. •• Providers of container vans, such as refrigerated containers from CRYO and FBIC, After a few years of operation, the general and fan and dry containers from FBIC and membership of the clusters decided to formalize Aboitiz. and register their groups into a cooperative: the •• Providers of cold rooms and storage facilities Zamboanga Sibugay High-Value Crop Marketing in Zamboanga City, Siay and Cagayan de Oro. Cooperative. The need to aggregate and formalize became necessary when some purchasers began Organizing production and marketing to require government registration and business clusters and building capacity papers. At the time of the project, the cooperative CRS and its partners have developed a clustering had 204 members. approach to farmer organization that: Product sampling •• Prepares farmers to link with the markets. Fruit samples were sent to food processing enterprises in Manila to check for quality and

63 A Guide to Strengthening Business Development Services in Rural Areas determine shelf life. Additionally, calamansi the cooperative dramatically improved with produced in Siay was processed into puree in the construction of seven sorting sheds, a commercial multi-fruit processing plant in combined with training on improvements in Cagayan de Oro City and sent to a wholesale production, product packaging and handling. buyer. Various other product samples were sent Cooperative members contributed land and to prospective buyers in Manila, including hand- labor, and CRS provided the materials. The squeezed puree and fresh fruit. sorting sheds have also become the venue for cluster activities, such as training workshops The feedback received from buyers became and regular meetings. CRS assisted the the basis for medium-term capacity building clusters in formulating a management plan interventions to improve product quality. For that outlines selection of persons-in-charge example, Siay calamansi was discovered to be to keep the facilities in good condition, less preferred in the fresh fruit market because maintenance requirements and usage fees. of short, three-day shelf life. And while puree Non-cooperative members can also use the samples met pH, color, soluble solids and sugar facilities by paying a fee, which is used to content requirements, it exhibited a bitter taste maintain the infrastructure. defect that needed to be corrected. •• CRS has also supported the construction of water reservoirs and the repair of access Agricultural technology dissemination roads. Cluster members pay 5 to 20 pesos per In addition to market research, the project month (equivalent to US$0.11 to US$0.44) has been successful in training smallholder toward the maintenance of the water tanks. farmers on simple farming technologies and Repaired access roads have facilitated the good agricultural practices aimed at increasing transport of fresh fruits from the farms to farm productivity and efficiency. For instance, the sorting sheds, and some farmers report at Farmer Field Schools farmers formulate reductions in transport cost by as much as 50 natural farming technology systems aimed at percent. Aside from savings in cost, the repair increasing yield while decreasing the cost of of the roads decreases the incidence of damage pest management. to fresh fruits during transport. The access roads are now maintained by the barangay Access to credit through microfinance local government. institutions CRS also works with partner microfinance Adding value to enter new markets institutions to develop appropriate agricultural Farmers found it hard to make a profit selling financing models for calamansi farmers, including: fresh fruit to Manila between May and November when the large calamansi-producing provinces •• Production financing: Loans used for the closest to the city harvested their crop. procurement of agricultural inputs and labor Oversupply of fresh calamansi fruits during so that individual farmers can invest in crop this period caused prices to dip so low that production. farmers were unable to cover their production •• Purchase order financing: Designed to work and marketing costs. As a result, cooperative in the same way as production financing, these members decided to invest in processing for loans are secured against a forward contract concentrate and ready-to-drink beverages. between the farmers’ group and a buyer. •• Receivables financing: Loans extended to The cooperative started processing calamansi a producer organization for use as working in early 2008 to supply the local market. capital to pay farmers for the crops they have This was on a small scale in the home of one delivered at harvest time. The group repays of the members. A number of agencies and the loan when the buyer pays for the crop institutions recognized the cooperative’s needs delivered, usually set at a 30-day term. and worked together to increase the scale of the operations to make the venture successful. Provision of post-harvest facilities and The municipal government of Siay leased one of other infrastructure its facilities at no cost to house the processing equipment for 10 years. CRS, in turn, managed •• The lack of post-harvest facilities and other the renovation of the building as well as the infrastructure was a major barrier. The construction of two ferro-cement tanks for the quality of the fresh fruit being marketed by supply of processing water.

64 A Guide to Strengthening Business Development Services in Rural Areas

The required processing equipment was sourced Successes and challenges from the Department of Science and Technology’s (DOST) Small Enterprises Technology Upgrading Growth in sales Program (SET-UP). CRS facilitated the initial Since the project started in early 2005, meeting between the cooperative and DOST calamansi farmers in Siay have moved from and assisted in preparing the proposal for the selling irregularly to local traders to having cooperative to access the facility. The value of access to Manila wholesalers to whom they the successful proposal, worth 500,000 pesos supply competitively for nine months a year. (US$11,100), was used to purchase electrically The cooperative has a secure financial base powered processing equipment (e.g., a 150-liter and a track record of organized product supply. capacity steam jacketed kettle, 40 feet of cooling Collective sales of fresh calamansi increased from coil, a transfer pump, a 150 liter filling tank and 21.5 MT in 2005 to 60.8 MT in 2009. The value of a juice extractor with a vertical hydraulic press these sales has also increased, from US$63,810 and electric motor). to US$268,150 in the same period.

CRS also sought the assistance of other national Confidence to meet new challenges and regional government agencies to improve The cooperative’s experience with processing the operation of the processing facility. The calamansi for the institutional market was Department of Trade and Industry and DOST slow. Initially, farmers were intimidated by the conducted training on good manufacturing stringent quality standards and the various procedures. After the training, the cooperative post-harvest handling requirements (e.g., use of drafted Sanitary Standard Operating Procedures wooden crates, sorting, drying, documentation). with the assistance of the Municipal Sanitation Much of this uncertainty was driven by stories Office. The calamansi concentrate and ready- of others who had tried but failed to supply food to-drink beverage also passed through various processors. Siay’s farmers needed to go through laboratory tests undertaken by DOST, namely (1) the experience of an actual delivery to believe that microbial tests, which included yeasts and molds they could attain the required quality standards. count, total coli form count and aerobic plate In 2009, 8,524 bottles of calamansi concentrate count; (2) nutritional data; (3) sodium test; and were sold for a value of US$11,130. (4) shelf-life testing.

CRS has assisted the cooperative in searching Initial investment in human and social for larger and more stable markets. For example, capital and infrastructure during the project, the cooperative signed a Since the project’s inception in 2005, CRS has memorandum of agreement with an exporter in invested around US$108,820 in providing support Manila for 2,400 bottles per month. Part of the for training in production, post-harvest handling agreement was for the exporter to provide on-site and business skills, as well as investment in technical assistance to the cooperative through infrastructure, market research and product a production trial run for the export market. development. Today, CRS support has been Other markets for calamansi concentrate include reduced to one staff member who assists the schools, government offices, hotels and private cooperative in securing permits from the Bureau establishments. Promotion of the products was of Food and Drug Administration and in running done through flyers, banners and streamers. The their business effectively. From its initial role as cooperative also participated in trade fairs, which a co-implementer, CRS now acts as an advisor to can link them to possible new markets. the cooperative.

Local staff composed of a manager, a production Access to services officer, 10 trained processors, a bookkeeper and a Through their clusters and the cooperative, property custodian now administer the calamansi calamansi farmers have benefited from greater processing center. The generation of employment access to services. For instance, technical for Siay residents, especially cooperative assistance in production and post-harvest members, has fostered trust and confidence handling was provided through the clusters and among the community. the Farmer Field Schools. The cooperative and the clusters provided linkages between farmers and buyers, with costs being covered by the margins obtained from sales. Technical assistance for

65 A Guide to Strengthening Business Development Services in Rural Areas the processing of calamansi was later obtained facilitator. A critical part of this role has been from government ministries at no cost and from to ensure that farmers, the clusters and the private companies with whom the cooperative has cooperative have access to services they need negotiated sales agreements. to maintain and increase their competitiveness. Good practices and lessons learned from this Perceptions of handouts weaken experience include: self-reliance •• Grants and subsidies are required for building For the clustering approach to agro-enterprise the human capital (knowledge and skills) and development to be effective, facilitators have to social capital (organization and relationships) ensure that the process empowers farmers, their of farmers. Investment is also required in organizations and other actors in the market infrastructure, market research and product chain. Empowerment is achieved by emphasizing development. Farmers have to be informed that the value of self-reliance. However, this becomes these investments represent short-term support problematic when the local government unit is during the incubation stage of their enterprise the lead organization in project implementation, and are not permanent support measures. as farmers commonly perceive that the local •• Guiding clusters through an interactive government unit’s support comes in the form enterprise planning process helps farmers of handouts. Additionally, facilitators from the think in a more entrepreneurial way. local government units often lack orientation and Financial planning and profitability analysis training in community organization, marketing helps them recognize what costs need to be and processes that lead to outcomes that are not covered and what service fees have to be paid dependent on free goods and services. for. Farmer involvement results in farmer ownership of the plan and the ability to adjust Technology to maintaining competitiveness it based on their needs. Most farmers do not calculate their production •• Small failures and setbacks will happen. costs, and if they do, they do not include the Development facilitators must not readily value of their own labor. They are used to a subsidize losses or costs. Interventions only “jackpot” mentality in spot trading, where become necessary when the survival of the price is based on fluctuations in supply and enterprise is at stake. Clusters are more demand. Producing a processed product for an likely to be able to cope with the ups and institutional market has required a total shift in downs of business if they have had adequate the way price is fixed. The project has led them preparation to engage with markets. through the exercise of listing all their activities •• The cluster facilitates the market link between to determine a break-even price critical in farmer and buyer for which farmers pay a arriving at price offers. Often farmers’ unit cost service fee. There should be no layers between is higher than that of better-off producers who the cluster and the buyer. This means that are more efficient at producing and marketing. the farmer members of the cluster receive the Therefore, constant benchmarking of costs and buyer’s price for their product. profitability becomes critical. And maintaining •• Credit is better provided through organizations competitiveness in the market requires access to that have expertise in credit management. The technology and services that lower unit product development facilitator’s role is to reduce risks cost through higher yield and better rates of by ensuring that technologies for productivity recovery in processing, or that increase prices by are in place, field monitoring and technical improving product quality. advice is available, the loan is used for its intended purpose, and built-in schemes of loan payment from product sales are in place. Best practices and insights The calamansi project has sought to build the capacity of smallholder farmers to engage with Further information modern markets. It has been executed with the Catholic Relief Services. (2007). The clustering approach intention of reaching a stage where farmers and to agroenterprise development for small farmers: their organizations are capable of continuing to The CRS-Philippines experience. A guidebook for facilitators. Davao City, Philippines: Catholic Relief produce and market calamansi products without Services. http://www.pinoyme.com/b2b/wp- continued injections of external donor support. content/uploads/2008/07/part_1.pdf. CRS has played the role of external development

66 A Guide to Strengthening Business Development Services in Rural Areas

Catholic Relief Services. (2014). Moving together moving-together-to-the-market-the-clustering- to the market: The clustering approach to approach-to-agroenterprise-development.pdf agroenterprise development for small farmers. Uy, J. 2009. Collective marketing of calamansi in the Baltimore, Maryland, USA: Catholic Relief Philippines. In: Ferris, S., Mundy, P. and Best, Services. http://static1.1.sqspcdn.com/ R. (Eds). Getting to market. From agriculture to static/f/752898/25350064/1408713852200/ agroenterprise. Baltimore, Maryland, USA: Catholic Relief Services.

67 Case Study 3.2 Kenya Dairy Sector Competitiveness Program: A New Business Model for Kenya’s Dairy Industry By Bradley Buck, Mary Munene and Nancy Amayo, Land O’Lakes, Kenya

In countries such as Kenya, where there is a Land O’Lakes has assisted smallholder producers commercial agricultural sector with good growth in Kenya to incorporate productivity-enhancing prospects, the market for business services is inputs. These include frozen semen from proven likely to be strong. However, the challenge for bulls and concentrated feeds formulated for high- development organizations is how to mobilize producing cows. Land O’Lakes has also promoted existing service providers and upgrade their sustainable dairy production by introducing: capacity so the services they offer meet the needs of different actors in the value chain. •• Leguminous fodder crops to improve feeds and This case study looks at how to do this through protect the soil. competitive grants to business service providers. •• Silage to reduce overgrazing. It also explores the catalytic role of the business •• Gloves for safe handling of agrochemicals and development service facilitator. information on the safe use and disposal of pharmaceuticals and agrochemicals. •• Metal cans for hygienic transport of milk. Growing Kenya’s dairy sector •• Energy-saving stoves in family homes to reduce environmental degradation through deforestation. Dairy is one of Kenya’s most developed sectors. Each year, the country produces 3.5 billion liters of milk, Farmers were linked to the market through milk with annual revenue reaching US$1 billion. Dairy is bulking and cooling businesses. These allowed them the second-largest contributor to agricultural GDP, to aggregate larger volumes of quality milk and after beef. Most of the more than 500,000 small- competitively sell to processors. At the same time, scale dairy farmers milk two to four cows and are processors were seeking high-quality raw milk, but located in the Central Highlands and Rift Valley. needed to control procurement costs as they ramped They deliver their raw milk to vendors (“hawkers”) or up plant capacity to expand their production. local milk bulking and cooling centers. Land O’Lakes adopted a market development In order to meet growing domestic demand approach to facilitate the provision of business for dairy products and compete in regional development services. We build partnerships markets, the Kenyan dairy sector needs with private sector players within the value chain to ensure that its high-quality milk moves and provide short-term subgrants or contracts efficiently across farms, collection points and with local facilitator firms. The U.S. Agency for processors. Efficient value chain logistics also International Development supported this work leads to higher utilization of processing plant through the Kenya Dairy Sector Competitiveness capacity and lower consumer prices. Program (KDSCP). Kenya has a network of business service providers, including food At the farm level, a greater proportion of new science and business management professionals, and existing smallholder producers must make community-level stockists or agro-vets, and the investment in improved cows and facilities small-scale feed manufacturers. Our approach to build the volume of milk required for Kenya’s strengthened market functioning for targeted growing population and to ensure high use services by building and linking supply and of processing plant capacity. Producers also demand, while enabling commercial transactions need access to training, technical assistance between the farmers and service providers. and inputs, and they must adopt improved technologies for profitable production of high- quality raw milk.

68 A Guide to Strengthening Business Development Services in Rural Areas

The milkshed model The aim was to supply beneficiaries with the necessary business development services and Land O’Lakes’ business development-centered financial products to catalyze market growth and approach in KDSCP helped to transform Kenya’s foster industry competitiveness. dairy industry into a globally competitive regional market leader. Specifically, we promoted a In each of the eight milksheds where we worked, milkshed development model that focused on Land O’Lakes used a competitive bidding collecting 50,000 to 100,000 liters of milk or more process to hire competent facilitation firms from multiple collection centers within a given with staff experienced in business development area (a “milkshed”). It contrasted with previous services, business advising, production and models where activities centered on individual quality control. After identifying and addressing farmers or collection centers. constraints to competitiveness in specific areas of the value chain, the facilitators worked The new model, which is how world-class dairies throughout the dairy sector in each milkshed, view their supply base, requires significant exposing various actors to the business investment in upgrading existing or new milk development services approach, clarifying the bulking facilities and support markets. The type of available support and providing them with application of the model: an application form for detailing specific areas •• Maximized collection and transport efficiencies where they need assistance. to reduce costs. The facilitators were then charged with Installed quality assurance practices across •• developing action plans to address these discrete the milkshed. competitiveness constraints in a manner that Facilitated strategic public–private alliances •• built in a responsible exit strategy and allowed that built sustainable markets. them to leave with the market more competitive Fostered linkages among and between leading •• than it was before. dairy processors, producer organizations, financial service providers, input and service providers, To enable this process, Land O’Lakes provided local authorities and development partners. facilitators with grant awards ranging from US$10,000 to US$100,000. These grants were Critical to the success of this approach were designed to resolve key constraints, such as strong vertical and horizontal linkages. Vertical building the leadership capacity among small linkages—between farmers and producer farming organizations or facilitating financial organizations, producer organizations and services for service providers. To date, we have processors, and processors and retailers/ provided nearly 50 awards, at a rate of four to exporters—provided market access and facilitated five grants per month, with an average amount of knowledge and resource flows throughout the US$30,000. value chain. Horizontal partnerships helped build economies of scale by reducing collection and At the enterprise level, Land O’Lakes facilitated transport redundancies and inefficiencies. commercial linkages among processors, producer organizations, and commercial input and service providers. The goal of this effort was to build Transforming Kenya’s dairy industry robust and sustainable partnerships, achieve We engaged key industry stakeholders—including economies of scale and upgrade milk quality in commercial business service providers, industry high-potential milksheds to meet national and associations and occasionally government service international standards. providers—to identify constraints to competitiveness and employ market-based solutions. Key components of our methodology We also stimulated investment in the research, The predominance of commercial agriculture dissemination and expansion of new and existing and dairy farming in the Kenyan economy has market-based services, inputs and technologies attracted a wide array of commercial business that directly increased competitiveness and service providers. These service providers have ensured environmentally sustainable commercial the potential to meet the majority of service and dairy practices. Our approach prioritized the use input requirements demanded by stakeholders of local Kenyan resources, which were mobilized at key points along the dairy value chain. In the through a competitive sub-awards program. past, government, donors and nongovernmental

69 A Guide to Strengthening Business Development Services in Rural Areas organizations have subsidized the costs of processors to help determine the services that business development services, which has should be outsourced and those that might be distorted commercial markets. Today, the few provided in-house, and then integrated these subsidies that remain are largely within farm- findings into their respective business plans. level extension services. •• Evaluation of business service providers. For outsourced input and service delivery, Land Land O’Lakes follows a market-based solutions O’Lakes conducted a business development model that (1) identifies key constraints and services market diagnostic in each milkshed opportunities to competitiveness at critical to highlight the supply and demand of key points in the value chain; (2) identifies market- support services and inputs required by based solutions to these constraints working various stakeholders along the value chain through commercial business service providers; as well as to assess the capacity of existing (3) assesses and prioritizes the most viable and service providers. critical solutions; and (4) implements solutions •• Capacity building of business service by facilitating service providers and by promoting providers. Based on results of the evaluation embedded service delivery within producer process, Land O’Lakes facilitated training organizations, processors and input and service workshops and seminars for service providers providers. Land O’Lakes also strengthens new that covered topics such as business planning, service providers by expanding the number of financial management, embedded service delivery, innovative, low-cost and high-impact services, marketing, after-sales service, gender and youth inputs and technologies available in the aspects of dairy businesses, and sustainable marketplace, and increasing their utilization natural resource management practices. among producers. •• Directory of business service providers. Land O’Lakes solicited corporate capability To minimize potential market distortions, most statements from known and potential business services are provided at commercial market rates. service providers that were compiled into This includes fee-based services that generate an online directory as part of the KDSCP revenues at the enterprise level and embedded knowledge management system. services whose cost are deducted from a farmer’s Business-to-business linkages. Land O’Lakes milk sales. Such services are budgeted and •• competitively selected third-party business accounted for as operational costs and are passed development service facilitators for each on to the consumer in the final retail price. milkshed to assist with linkages between Key components of our methodology include: service providers and producer organizations on a demand- and market-driven basis. •• Milkshed mapping. Land O’Lakes hired local •• Value chain financing. Land O’Lakes consultants through competitive tenders to promoted new and innovative financing conduct milkshed assessments to determine arrangements for the dairy sector by the production and collection potential of a collaborating with financial institutions and given milk production area. other donor-supported development programs. •• Producer organization needs analysis. Once These included products targeting business milksheds were identified and prioritized, Land development service providers and consumers O’Lakes collaborated with leading processors as well as those that increase women’s access to identify existing producer organizations to financial services. within each milkshed. We then facilitated a rapid needs analysis to better understand the strengths and weaknesses of each organization. Successes and challenges Milkshed action plans. The findings from •• Successes the needs analysis were presented to regional stakeholders during milkshed action planning •• Training and technical assistance in dairy workshops that focused on identifying husbandry was provided to 36,736 producers constraints and prioritizing market-based (23 percent women), with 40,000 more reached solutions to increase competitiveness. indirectly at breeders’ shows and exhibitions. •• Embedded services. Land O’Lakes assisted •• A total of 5,466 new jobs were created and target producer organizations and dairy producers increased their milk-related incomes by 28.2 percent.

70 A Guide to Strengthening Business Development Services in Rural Areas

•• Sixty-nine producer organizations and services by farmers, producer organizations smallholder business organizations were and service providers who were conditioned to transformed into sustainable businesses expect direct financial assistance. through redesigns of their operations to maximize returns and eliminate waste. •• We facilitated better prices for two farmer Best practices and insights groups, which were providing their members •• Milkshed mapping, milkshed action plans and with considerable incremental income. The producer organization needs analyses were overall value of milk sold by beneficiary extremely useful in enabling the program to farmers in the past year was US$26.4 million— focus on high-potential, high-need areas and surpassing our second-year target of US$21.4 beneficiaries. million by 23.5 percent. •• The milkshed approach enabled better •• A total of 20,158 producers (33 percent coordination, information sharing and women) received assistance in accessing credit ability to leverage resources across public, in KDSCP’s first year, surpassing our target of nongovernmental and private sector partners 18,000 farmers by the end of year 2. supporting dairy development in Kenya. •• Stakeholders along the value chain were Challenges willing to come together as long as there •• Underfunding and insufficient communication was a constructive agenda that benefited and coordination among government of all. Beneficiaries were willing to pay for Kenya departments initially resulted in a wide range of goods and services once low participation among government staff, they understood how they contribute to although this improved. profitability. •• Low purchasing power and poor milk •• The creation of competition at all levels marketing limited uptake in production, ensured beneficiaries received a good value for processing and storage technology, including their money and avoided an over-reliance on artificial insemination, information and too few input suppliers, service providers and/ communication technology, biogas, chaff or buyers. cutters, silage making and milk cooling tanks. •• Working with individual business development •• A history of cooperative failure hindered service facilitators for each milkshed enabled trust among farmers and many in producer the development of creative approaches for organizations. stimulating and building capacity within a •• Poor business skills within the producer short time frame. organization management committees made them reluctant to contract with new service providers, even when current providers were Further information ineffective or a poor value. Action for Enterprise. (2014). Value chain program •• Subsidized or free services by the government design: Promoting market-based solutions for MSME and development partners led to the slow and industry competitiveness. Paper to USAID/ uptake in fee-based business development EGAD/MD. Arlington, Virginia, USA: Action for Enterprises.

71 Case Study 3.3 Private Provision of Market Linkage Services for High-Value Crops By Naomi Mungai, Fineline Rural Reach Ltd., Kenya, and Fred Sango, Agribusiness Management Associates Uganda Ltd.

Due to a long history of government-subsidized to ensuring the sustainability of the activities or donor-supported interventions, private fee- supported once the interventions ceased. This based service provision to smallholder farmers is case will examine the experience of two of these uncommon in many developing countries. This service providers: case study shows how two private sector firms have established themselves by providing fee- •• Fineline Rural Reach Ltd., which supported based services to the passion fruit and chili value the establishment of a passion fruit value chains in Kenya and Uganda, respectively. chain in Kenya. •• Agribusiness Management Associates Ltd., which supported the establishment of a chili Constraints to fruit, vegetables and value chain in Uganda. spices export markets East Africa is well positioned to export fresh Fineline Rural Reach and the passion fruit, vegetables and spices, for which there fruit value chain is an increasing demand in Europe. However, smallholder farmers are largely excluded from Fineline Rural Reach Ltd. (FRR) is a private this market opportunity because of exacting company incorporated under the 2006 Kenyan standards set by importing countries. In addition, Companies Act. It was formed as a subsidiary exporting companies are wary of working with of Fineline Systems and Management Ltd., smallholders and doubt their capacity to produce a microfinance and enterprise development the quantity and quality required to sustain the consulting firm, in line with the Kenya business export market. development services program, and was funded by the U.S. Agency for International Development, In order for smallholder farmers to participate which required all projects under the program in and benefit from these markets, several to be commercialized for sustainability after the constraints must be overcome, including: funding period. FRR took over the management of a passion fruit project after the donor exit •• Weak farmer organization and business in 2007, supporting the smallholder passion orientation, especially in their ability to fruit business in the country’s Embu, Meru and consolidate production and maintain records. Kirinyaga districts. •• Insufficient technical skills and post-harvest management practices. A typical passion fruit farmer in these districts •• Poor access to inputs, especially seed, which owns on average of 2 acres of land, with about affects the quantity and quality of production. 0.25 acres dedicated to growing approximately •• Limited access to financial products and 150 passion fruit vines. The rest of the land is services. devoted to other crops, such as tea, coffee, maize •• Patchy and untimely support from public and and vegetables. FRR’s primary role was to link private service providers. exporters with smallholder farmers and to ensure that the needs of both were met through equitable There has been considerable effort over the past trading relationships. FRR is governed by a board 10 years to address these constraints through of directors and employs a manager, a coordinator donor-financed interventions. Several projects and four field officers. All staff for this project have given special attention to partnering with work were hired competitively. private sector service providers, with a view

72 A Guide to Strengthening Business Development Services in Rural Areas

Services offered by Fineline Rural Reach centers to improve efficiency and reduce costs for the exporter. Group mobilization, strengthening and Reviewing contracts and coordinating management •• payments. Over time, FRR has developed This included outreach and recruitment payment mechanisms that were acceptable activities to bring in new groups and identify to all parties. FRR signed memorandums of existing groups in passion fruit-growing areas. agreement with all the buyers specifying the Strengthening of groups was achieved through dates of payment following fruit deliveries. training in records management at the individual Farmers signed supply contracts with the and group level; facilitation of elections to buyers specifying the same. These agreements appoint suitable leaders; and reconstitution were binding documents. FRR collected the and restructuring of groups in terms of payment checks from buyers and delivered management policies and procedures, such as them to the farmers. FRR also monitored meeting attendance frequency and formation of the payment to individual farmers by their subcommittees within the group. respective organization, ensuring that Group management activities were undertaken by payments were not late and that no unfair the group management officers (field officers), who deductions were made. were in charge of a designated number of groups •• Managing quality standards. FRR ensured that (maximum 20), backstopped by FRR’s coordinator produce met the market requirements and and the manager. The Ministry of Agriculture and facilitated GLOBALG.A.P. certification. local authorities also helped organize meetings and •• Project updates. FRR regularly updated buyers facilitate recruitment of farmers. on crosscutting issues that can adversely affect the progress of the project. Orchard management Orchard management involved establishing For these services, FRR charged a fee that was production performance targets for farmers, openly discussed and agreed to by both farmers farmer groups, group management officers and and buyers. After delivery of each consignment, an overall program for production purposes. The the exporter made two check payments: one to group management officers, in liaison with the FRR for the fees and the other to farmer groups buyers’ agronomists, enforced quality management directly. The provision of effective business systems by training farmers on the safe use of development services brought mutual benefits agrochemicals and on record keeping to avoid to both the farmers and buyers: farmers gained exceeding agrochemical maximum residual levels. access to a ready market for their produce and FRR also linked farmers to input providers of the exporters and processors were assured of a quality planting materials and agrochemicals. For steady supply of high-quality fresh produce. planting materials, this involved the establishment of group and farmer-level nurseries. Some Passion fruit value chain performance selected farmers were encouraged to produce The number of farmers benefiting from the higher numbers of seedlings beyond their needs intervention grew from 400 in 2004 to 2,074 in and were trained to produce the desired quality. 2009, organized into 87 producer organizations. FRR helped them to register at the Horticultural Market linkages were formalized with four Crops Development Authority and the Kenya leading exporters. Since the project was Phytosanitary Health Inspectorate. initiated, more than 1,800 metric tons (MT) of passion fruit were sold, resulting in farmers Market linkages receiving more than 90 million Kenyan shillings FRR ensured smooth relationships existed (US$1.3 million). Additionally, 10 of the 87 between farmers and exporters by undertaking groups underwent GLOBALG.A.P. training, and the following activities: 5 groups had undertaken the pre-audits in preparation for certification. •• Preparing production projections. FRR provided regular and accurate production Smallholders were able to produce high-quality projections and liaised with farmer grade 1 fruit for export to the satisfaction of the management committees to ensure that their buyers. They used grafting techniques, good members complied with production targets. agricultural practices and orchard management •• Coordinating fruit harvesting and collection. skills. They gained vital negotiation skills and FRR organized collection routes and collection took up passion fruit production as a business.

73 A Guide to Strengthening Business Development Services in Rural Areas

The working relationship with exporters improved International Development, where they gained over the course of the intervention. The farmers experience in marketing, production, post-harvest appreciated the role played by FRR and sought its handling, processing and quality assurance of services to source other products. New exporters high-value products. observed the success and were interested in working with FRR. In 2005, AMA joined a U.K. Department for International Development-funded project that Brokers, who used to buy directly from farmers, supported the production and export of chili to increased their prices to survive in the market. European Union countries. The key value chain Today, they buy grade 2 fruits at competitive actors were chili farmers, who were members of prices and are sometimes offered attractive prices Awagga Ekku Cooperative Society and Jaksons for grade 1 fruit. This has meant that some farmer Farms Ltd., which exported fresh fruits and groups dropped out of the FRR-managed passion vegetables to Europe. The Natural Resources fruit business arrangement but not the sector. Institute and the Natural Resources Development College Export Growers Association provided Attitudes of other stakeholders have changed. technical assistance and training on food safety The Ministry of Agriculture staff initially felt and quality regulations and made contacts with that FRR was a competitor and that they should European buyers. Because strict European food offer the work FRR was doing. Today, they have safety regulations were identified as a major come to recognize the role played by FRR and threat that could cause them to lose the export appreciated the participation of the private sector. market, AMA’s role was to provide continuous They participated in FRR and farmer meetings, support to and training of Awagga Ekku farmers provided technical advice to farmers, witnessed and staff of Jaksons Farms on the establishment the signing of supply contracts, and collected of a quality management system. data from the passion fruit business for their monthly reports. Despite getting free services The Awagga Ekku Cooperative Society was located from others, farmers showed that they were 100 km south of Kampala in Uganda’s Mpigi willing to pay for services when they could see the District. Agricultural production took place in value for money. the valleys to take advantage of natural rain-fed irrigation. Most farmers grew matoke bananas, FRR was the only service provider operating coffee, cassava, sweet potato, cocoyam, beans according to the original Kenya business and maize. Forty of Awagga Ekku’s 85 member development services concept. It was able to farmers were growing hot pepper, which was a operate independently and reach a break-even major export crop. point. However, it became evident that passion fruit alone would not make the company profitable and Services offered by Agribusiness plans for diversification were put in place. This Management Associates aimed to spread the risk and broaden the capital Market linkage base for both FRR and the farmers it served. •• AMA organized monthly review meetings with Jaksons Farm and the farmer cooperative, Agribusiness Management Associates while quarterly meetings were held with international partners. This ensured active and the chili value chain participation of all the actors and partners. Agribusiness Management Associates (AMA) is a •• Communicating and continually updating registered Ugandan limited liability consulting information on the dynamics of the hot pepper company headquartered in Kampala. AMA export market. works with government agencies, agribusiness •• Training farmers and Jaksons Farm staff in companies and international technical assistance food safety and the implementation of a quality agencies. The company undertakes market management system, including good agricultural and feasibility analyses, provides training and and post-harvest handling practices. technical assistance, and manages agricultural research and extension activities. Founding Business management members of AMA previously worked on the AMA supported the farmer cooperative with Investment in Developing Export Agriculture leadership development, contract marketing (IDEA) project, funded by the U.S. Agency for and negotiation skills, and provided updates on additional or new marketing requirements.

74 A Guide to Strengthening Business Development Services in Rural Areas

AMA received payment for these services either during the project, AMA staff were providing directly by Jaksons Farm, which sponsors technical support to other farmer groups the training of farmers by AMA and other and companies wishing to establish quality service providers, or through financial support management systems. provided from development partners. This latter arrangement was short term in nature. Long-term sustainability came through farmers observing Successes and challenges the true value of services that increased Both the passion fruit and hot pepper value production and resulted in higher incomes, and chains have considerable growth potential. were then willing to cover their cost. Markets were available and accessible, and quality crops could be produced in a profitable Services offered by Jaksons Farm and sustainable way. The cases illustrate the Agricultural extension key role that private service providers play in Jaksons Farm provided, as an embedded establishing and consolidating linkages between service, extension advice and training to farmers and buyers. cooperative farmers on production and post- harvest quality management. There were, however, environmental, technical and organizational constraints that affected Record keeping the competitiveness of these value chains. The The extension staff managed the centralized existence of these constraints jeopardized the farmer record system, and transferred the long-term sustainability of the individuals or records kept by each individual farmer in their firms that provided services to the chain actors farm diary. This was an embedded service in the by reducing the ability of their clients to pay for commercial contract with outgrowers. the services offered. The constraints included:

Agricultural inputs and crop spraying •• Drought. Because production of both crops Agrochemicals were bought in bulk from reliable was rain fed, access to irrigation can overcome suppliers and made available to farmers on periods of drought and enable constant credit. Spray application was done by trained production throughout the year. Yet without spray operators based on scouting reports. investment in irrigation, buyers and market Records of agrochemical were kept by each linkage service providers look for areas that farmer. Payment for the products and spraying already have irrigation facilities to source were deducted from the sale price. supplies. Smallholder farmers without irrigation were bypassed. This constraint Hot pepper value chain performance identifies an unfulfilled service need and a In 2007–2008, Awagga Ekku became the business opportunity for existing or other first farmer cooperative in Uganda to be service providers. GLOBALG.A.P. certified. In turn, by being able to •• High-quality seed. Lack of certified seed comply with statutory and market requirements, compromised the productivity and quality of Jaksons Farm increased sales by 40 percent, both crops. Greater investment in horticultural from 70 MT to 98 MT, in the three-year period research within the national agricultural from 2005–2006 to 2007–2008. Their annual research organizations is needed to support gross revenue increased from US$193,000 to the competitiveness and expansion of the US$294,000 in the same period. Farmers used smallholder fruit and vegetable sector. the additional income from hot pepper production •• Pest and disease management. Management of to improve their houses and pay for their pests and diseases was an ongoing challenge children’s school fees. Jaksons Farm and Awagga for horticultural producers that required Ekku heightened their visibility and reputation constant vigilance and updating of information for quality; this led to contracts with other local on the use of accepted agrochemicals for their and international buyers. This expansion of the control. Well-focused and publicly funded market base consolidated the gains made and research is also required to develop new increased revenues for both Jaksons Farm and management practices. Awagga Ekku farmers. •• Complexity of quality management systems. Low literacy levels among smallholder AMA continued to provide services to Jaksons farmers limit their ability to implement Farm and Awagga Ekku following the end of the quality management systems and caused project. With the knowledge and skills gained

75 A Guide to Strengthening Business Development Services in Rural Areas

some farmers to drop out. Farmer-to-farmer •• Successful market linkage service providers extension has emerged as a good practice that must be well grounded both in knowledge and follows a process of training, coaching and hands-on skills to fully command the respect mentoring lead farmers in the management of of farmers and buyers. the system. •• Proper costing of services to be offered ensures cost recovery and business sustainability. Fees need to be agreed upon by all parties up front. Best practices and insights •• Business diversification, both by farmers in •• The market linkage function was essential terms of crops and by service providers in to maintain the business. Services such as terms of clients, is important to reduce risks management and business skills training associated with a narrow product or client base. for farmer organizations and agricultural extension need to be provided to ensure the success of the market linkage function. This Further information will depend on local needs and demand, and Mungai, N. (2009). Factors hindering business the existence of other providers. development services provision in small scale horticulture enterprises in Mt. Kenya Region. Paper •• Ensuring accurate production projections, presented at the Regional Workshop on Delivering good record keeping and transparent Business Development Services to Rural Areas, management of payments are among the most Nairobi, Kenya, September 21-25, 2009. crucial market linkage activities. Ssango, F. and Kavuma, J. (2009). Market-led business •• Changing service provider staff attitudes from development services delivery to smallholder farmers donor mentality to a business orientation takes in Central Uganda. Paper presented at the Regional time. Basing staff performance on business Workshop on Delivering Business Development Services to Rural Areas, Nairobi, Kenya, September indicators (for example, production, profitability 21-25, 2009. and cash flow targets) helps this transition.

76 Case Study 4.1 Enabling Informal Farmers to Access Formal Markets By Don Seville, Sustainable Food Laboratory, and Shaun Ferris, Catholic Relief Services

Background and introduction The aim of the project was to support smallholder producers in linking to formal markets and There is increasing interest in finding ways developing more durable trading relationships to link informal smallholder farmers with the across the market chain. The project worked to formalized marketplace. Aligning thousands upgrade the bean value chain with a focus on: of poor traditional farmers with the rigorous and rapidly changing food quality and safety •• Identifying farmer–trader networks that requirements of modern supply chains poses supplied ACOS for export of beans. many challenges. If done well, the process of •• Using new varieties of beans to improve linking informal farmers to formal markets productivity at the farm level. can result in better incomes and new business •• Improving good agricultural practices. opportunities. However, modern markets are •• Improving linkages between farmers and other dynamic and exacting and in many cases, chain actors. smallholder farmers are unable to maintain their •• Building long-term business relationships position as regular suppliers. To address these between buyers and producers. and related challenges, new and more inclusive •• Developing a chain-wide support system that business models are being developed as a means enabled communication and traceability and of building more robust trading relationships built confidence throughout the chain. between smallholder farmers and formal buyers. This case examines how the Sustainable Food The goal was to align chain actors and increase Laboratory and Catholic Relief Services worked both quality and supply volumes to a new market in Ethiopia from 2007 to 2012 to promote and channel in Europe to achieve increased incomes improve the production and export of navy beans. along the chain, including farmer incomes.

Ethiopia has exported navy beans from the Rift Valley for the past 40 years. Ethiopian farmers Strategy are attracted to navy beans as they are a short- duration and drought-resistant rotation crop that Value chain upgrading improves soil fertility and provides cash in the The project promoted a package of technologies off-season. In this project, the chain partners to upgrade bean production, such as (1) included farmers, farmer cooperatives, a major improved varieties, (2) agronomic practices and exporter Agricultural Commodity Supplies (ACOS) (3) threshing on canvas. The project introduced and a U.K.-based bean canning company. ACOS several new varieties with better yields and is an Italian wholesale company that co-invested disease resistance compared to the local varieties. in a joint venture to build a modern processing Promotion of new technologies increased yield facility. The company’s scale and interest in and improved the quality of dried beans. improving their supply chain, and link with buyers using a socially responsible product story The project addressed the chronic shortage of made them an ideal commercial partner. improved seed varieties with a focus on Awash Melka and Awash-1 varieties. A total of 700 The project was implemented in two areas in metric tons (MT) of improved seed were provided Oromia Regional State, a major dried beans to approximately 15,000 farmers. Some of the production area in Ethiopia, working with farmers farmers retained seed and exchanged it with from sites in Lake Ziway to East Hararghe. other farmers.

77 A Guide to Strengthening Business Development Services in Rural Areas

Training and capacity building market actors and helping to bridge the informal and formal marketing worlds. The project conducted training on dried bean production, post-harvest management and The joint field visits improved trading relations business planning, with a specific focus on the between farmers, ACOS and their trader network. importance of using market information for The visits built trust and helped to align the decision making around collective marketing. A chain partners more effectively. This process total of 15,431 (13,737 men and 1,694 women) helped ACOS to secure their full order, which in farmers were trained and or received improved the past had been severely challenged by high seed. The project prepared a guide for dried bean levels of side selling. As a result of these efforts, production and post-harvest management. The better understanding of working relationships production guide was translated into two local was created which improved the flow of produce languages and distributed to extension agents to a new and more lucrative market. Problems and cooperatives. of product quality, rates of sales and side selling were still present, but they were at more viable The project field staff provided farmer groups with levels, and over time the trading relationships ongoing technical advice on subjects such as (1) work helped all sides to better understand each group formation, (2) strengthening management other’s challenges. practices, (3) improved productivity, (4) post- harvest and storage management, (5) improving grain quality and (6) collective marketing. Successes and challenges Stores As a result of meetings, discussions and networking between farmers, CRS staff, ACOS As part of dried bean value chain upgrading, the staff and local extension agents, the farmer project supported communities in constructing cooperatives and farmer unions made verbal four mini-stores. These mini-stores served as agreements with ACOS in regard to buying collection and marketing centers and were conditions. These discussions also enabled the prerequisites for collective marketing. The mini- farmers and ACOS to agree to buy the variety stores had a capacity of 50 MT. Awash Melka at the prevailing market price, as Improving quality of product long as the quality met their standards. This was a significant shift in thinking for the industry, as Traditionally, dried beans were threshed on the before this time, many farmers who had taken ground, which produced a contaminated product. up the variety Awash Melka based on research The project introduced a new method of threshing results were unable to sell this variety to the using canvas. Along with training and provision buyers, due to its difference in size, color and of inputs (canvas and seed), price incentives were shape. If this agreement had not been made, essential to rewarding and encouraging those who thousands of farmers would have been left with supplied a better-quality product. losses on their sales. Improved trading relationships Over the project period, the CRS team worked Summary gains from the project with a number of service providers, including Between 2008 and 2011 CRS supplied research, extension and microfinance approximately 15,000 Ethiopian farmers with institutions, to increase the use of new varieties, 700 MT of bean seed, planted at approximately upgrade training by extension staff and test new 100 kg per hectare. This investment upgraded finance instruments for input supply. yields and quality across the production system. Joint meetings were held at the community level The combination of seed and training in good where farmers, facilitators (nongovernmental, agricultural practices led to production increases extension and research organizations), exporters of 50 to 100 percent over baseline figures, a and traders met for the first time. They discussed change from baseline productivity (0.7 MT ways to improve their supply chain. Key topics per hectare to 1.4 MT per hectare). Disease- discussed included working together to access a tolerant varieties reduced disease pressure on new market, market size, buying price, variety yields in 2011. Over the duration of the project, type and quality requirements. These meetings the cumulative production was estimated at were essential in bringing together the main approximately 6,940 MT of white pea bean grain, with a cumulative wholesale market value of

78 A Guide to Strengthening Business Development Services in Rural Areas

US$2.5 million. These figures would have been Time frame requirements for value chain higher if not for the severe drought in 2009, development are long term which reduced yields by 90 percent. To secure and upgrade one supply chain may take four to eight years. Being able to apply Best practices and insights the lessons learned may only take three to five years. However, contextual differences are Making the bridge critical to making things work. Many of the Nongovernmental organizations working to issues faced in this project may not transform support long-distance value chains need to into formulaic guidance. build long-term relationships with a trusted intermediary if they are to successfully bridge Principles to develop new business model the formal and informal business worlds. This projects means that project managers need to establish Although recipes to upgrade value chain projects meeting points that bring together actors from the are complicated by context, the key principles production, trading and buying parts of the chain that we identified to improve new business and offer them the opportunity to learn about models were: each other’s challenges and find solutions that are mutually beneficial. •• Chain-wide collaboration •• New market linkages Facilitation •• Fair and transparent governance Chain-wide development is complicated. •• Equitable access to services Successfully supporting the testing of improved •• Inclusive innovation research products, improving agronomic practices, •• Measurement of outcomes integrating better financing systems, supporting improved trading relationships between farmer Seed systems organizations and buyers, undertaking market Although basic, the establishment of an effective analysis of products and establishing networking seed delivery system was a critical constraint opportunities at the wholesale retail level requires for the sustainability of the bean production certain skills and types of facilitators; a generalist and upgrading process. More efforts are is unlikely to succeed. required to build long-term sustainable seed system solutions that address the formal and At specific stages in the value chain, the overall informal worlds. Navy beans are not part of a project management team will need to work commercial seed system, and to address this with facilitators who have the skills to test need, CRS trained nine seed enterprise groups ideas and build confidence and trust between and built five seed storage units to support seed various actors in the chain. This project found marketing. Half of these seed enterprises failed. that researchers and agronomists were required The successful seed producer organizations were to work with extension agents and farmers to those in the most commercial bean production upgrade productivity, agricultural economists to areas who were linked to the most commercial undertake diagnostic analysis of the traders and farmer unions. These unions had credit facilities processors and work on trading relationships, that enabled farmers to take out loans to buy and market retail experts to discuss with canning seed and to buy a substantial amount of grain at factories and retail supermarkets in the United the end of the season for forward marketing. Kingdom. Each of these facilitators brought specific skills that were necessary to provide Credit expertise at the right stage of the supply chain. In this project, working with a microfinance All of these experts reported their findings back institute was a positive step in finding finance for to the project managers who synthesized the seed loans. Although this intervention ended due information to make decisions on where and to changes in local government policies on eligible how to make upgrading investments that would interest rates, the use of loan funds to support equitably support the entire chain. inputs was very helpful to the farmers. Access to credit is clearly part of any long-term success in upgrading value chains.

79 A Guide to Strengthening Business Development Services in Rural Areas

Business data and communications Companies have short-term memories This project revealed that individual relationships We found that there are major differences in may open doors for farmers, but they are time- thinking of top management, corporate social consuming to build and fragile to maintain. responsibility teams and buyers at the field, Establishing trust based on reliable data, rather factory and shop floor levels. Experience than personal relationships, may be more shows that today’s deal may not fit tomorrow’s efficient, sustainable, and scalable. In an attempt arrangement. Chain-wide facilitation teams to address the data challenge, CRS configured require great flexibility in operations and the a mobile technology to collect production and ability to reformulate initial plans to meet volatile marketing data in a more systematic manner. and shifting market conditions and changes in The goal of this work was to provide farmers views of actors within a lead company. with information on their production and business performance to assist them in their farm investments. Farmers need more business Further information advice as part of their extension package; the Ferris, S., Paschall, M., Seville, D., Dadi, L., & Kumssa, lack of business skills are a major challenge for G. (2012). Dried beans in Ethiopia: Increasing food sustainable upgrading in value chains. This area security through trade. International Institute for of capacity building should be part of any value Environment and the Sustainable Food Lab. http:// pubs.iied.org/pdfs/16035IIED.pdf chain project design, whether from public or private sources.

80 Case Study 4.2 Social Intermediaries for Market Access: The Case of the Cuatro Pinos Cooperative in Guatemala By Mark Lundy, International Center for Tropical Agriculture, Colombia

The Integrated Agricultural Cooperative Cuatro •• Provide social programs to facilitate access to Pinos was founded in 1979. The cooperative basic goods and services for rural families. emerged from a Swiss development project to help families displaced by earthquakes in Guatemala Cuatro Pinos manages a diverse portfolio of rebuild their homes. Following the successful vegetables supplied by approximately 5,000 completion of this activity, the cooperative smallholder farmers organized into more than began to focus on the marketing of agricultural 140 farmer groups, including cooperatives, products from seven principally indigenous associations, lead farmer informal groups and communities located around the town of Santiago nongovernmental organization-led groups. These de Saquetepéquez. groups are located in 48 municipalities, some of which suffer from the highest rates of poverty This case examines the success of the Cuatro in Guatemala. In addition to its smallholder Pinos Cooperative in meeting dual business and production base, the cooperative and associated social development goals. The cooperative has enterprises employ more than 1,200 women in evolved into what is called a “social intermediary sorting and packing activities. The vast majority firm” that performs a vital role in linking of farmers and employees of Cuatro Pinos are smallholder farmers to international markets. from Maya ethnic minority groups traditionally It provides focused technical, financial and excluded from business opportunities in social services to its suppliers, whether they are Guatemala. The average land holding per members or non-members. Often an intermediary household is between 0.12 and 0.30 hectare, with firm is either “too social” and not profitable or an average of five individuals per household. “too profitable” and not an effective agent for social change. Cuatro Pinos is striking a good In 2008, Cuatro Pinos exported fresh vegetables balance between both ends of this spectrum. worth US$14.5 million. This value represents an annual production volume growth rate of approximately 25 percent year to year from Background to Cuatro Pinos 2002 to 2007, and a 15 percent year-to-year growth from 2007 to 2012. In addition to Cuatro Pinos has survived three major phases volume growth, Cuatro Pinos has succeeded in over its 30-year history: (1) initial expansion positioning itself in competitive and demanding and successful entry into the export of fresh markets with clients such as Costco, Walmart, vegetables to the U.S. market (1977–1991), (2) Wegman’s, Sam’s Club and Tesco based on decline and near insolvency due to management certified product quality.4 crisis (1992–2002), and (3) recovery and consolidation as a market leader in fresh Cuatro Pinos works with two types of smallholder vegetable exports from Guatemala for the U.S. farmers: (1) cooperative members and (2) non- and European markets (2002 to date). member suppliers. There were 562 members of the cooperative, each of whom represented The mission of the cooperative is threefold: one family from the original seven communities •• Increase family incomes through the surrounding Santiago de Saquetepéquez. As production of high-value crops destined for equity owners, these families produce and sell non-traditional export markets. Organize small farmers in cooperative models •• 4. Due to the international economic crisis, prices that enable them to participate directly as received by Cuatro Pinos for its products in the U.S. business owners and legitimate exporters. market declined by 30 percent from 2008 to 2009.

81 A Guide to Strengthening Business Development Services in Rural Areas vegetables to Cuatro Pinos, participate in the Supply chain coordination annual assembly, receive direct access to social Supply chain coordination, based principally on services (health care, education, technical sales projections and actual sales data, flows assistance) and an annual production bonus from buyers back to the cooperative and on to (profit share) based on the volume of vegetables farmer organizations. The role of Cuatro Pinos they sell to the cooperative. The non-member is critical as the cooperative decides from where suppliers, approximately 4,500, far outnumber in Guatemala to source crops to meet projected the cooperative members and tend to come from demand. Based on sales projections, Cuatro poorer areas of the country. Pinos develops production plans with partner organizations and provides technical assistance Cuatro Pinos success factors and in-kind credit. Much of Cuatro Pinos’ success can be explained In cases where there is over- or under- through its attractive value proposition for poor production—relatively normal in the horticulture farmers, on the one hand, and exacting buyers on business—Cuatro Pinos collaborates with San the other. For both groups, Cuatro Pinos offers Juan Agroexport, a private firm, to either top-up a low-risk, high-return way of engaging with missing produce or market excess produce. In the other through supply chain coordination, this manner, both Cuatro Pinos and San Juan transparent chain governance, market linkages Agroexport are able to meet buyer demands in a and, critically, access to services. As such, more consistent fashion. Despite this alliance, Cuatro Pinos is a clear example of how a market however, there are times when the total volume of linkage company—or intermediary—can achieve produce available is less than that demanded by both business and social development goals buyers. within marginal communities in a profitable and sustainable fashion. Transparent governance Chain governance from Cuatro Pinos back to Forward contracts and certifications producer organizations and individual producers Cuatro Pinos buys through fixed-price contracts is clear, based on production plans and backed from member and non-member farmers alike. with formal contracts. These contracts stipulate products, volumes, dates, technology and inputs to use and provide Cuatro Pinos also holds frequent discussions and an up-front price to the producer. In addition, conversations among downstream chain actors. Cuatro Pinos negotiates transportation and The cooperative has managed to develop relatively packing shed costs in such a way that farmers long-term relationships with key commercial and farmer associations located further from the partners who are seeking a stable supply of high- central offices receive equal treatment to those quality produce and are willing to collaborate located close by. Cuatro Pinos provides in-kind with Cuatro Pinos. The role of LA Salad, a credit for seed and inputs, technical assistance vegetable wholesaler based in Los Angeles, and marketing services. California, is critical in this regard as is the use of the San Juan Agroexport office in Miami, Cuatro Pinos relies heavily on farm-level Florida, for commercial contacts. By identifying and packing-level certifications to guarantee buyers with stable demand, Cuatro Pinos is able product quality. These include the Guatemalan to offer forward contracts to producers. In a good agricultural practice standard known as spot market situation, this would represent an the Integral Agricultural and Environmental unsustainable level of risk for the cooperative. Protection Program (PIPAA) and increasing use of GLOBALG.A.P. Full transition to GLOBALG.A.P. Market linkages is driven through price incentives to farmers who One of the hallmarks of the Cuatro Pinos model gain and maintain certification. Current incentives is its scalability. The model expanded from 2,000 are US$0.03 per pound of product with 150 to 5,000 producers between 2005 and 2009. producers certified. The goal is to cover 75 percent This was achieved by developing a range of of the current producer base within four years. partnerships across the Guatemalan highlands. Cooperative staff applied two key principles to achieve this:

82 A Guide to Strengthening Business Development Services in Rural Areas

•• Market intelligence. Cuatro Pinos is well as Cuatro Pinos’ staff struggled to promote connected with other organizations in production and recoup outstanding credit. Guatemala—principally through the export Second, the cooperative engaged a microfinance growers union AGEXPORT—and thus can institution—ECOSABA—to provided loans easily identify existing farmer organizations directly to producers, which was more expensive and/or infrastructure investments (irrigation for the producer than the direct provision model. or packing houses) that are operating under Finally, Cuatro Pinos tested a third model where capacity. Overlaying that knowledge with the the cooperative itself accesses a large credit agronomic needs of its principal crops allows line, first with a state guarantee through the the cooperative to quickly target potential Da Crédito program and later directly, with partner organizations. This, combined with the commercial bank Banrural. To date the relatively low-risk, turnkey production, make cooperative has disbursed loans totaling US$4 Cuatro Pinos an attractive business partner for million at interest rates between 10 percent many farmer organizations. and 12.5 percent annually. These rates are •• Organizational agnosticism. The second significantly lower than the rates available to principle of organizational agnosticism has individual farmers via ECOSABA. allowed Cuatro Pinos to work with a range of partners, including other cooperatives, In addition to credit provision, Cuatro Pinos diverse types of formal and informal farmer purchases agricultural insurance to cover associations, nongovernmental organizations weather risks. The Guatemalan government and lead farmer networks. Essentially, the subsidizes half of the insurance premium and cooperative does not demand that its partners producers do not know that they are insured follow a particular organizational model, so to avoid moral hazard. Should a loss occur, the long as it shows capacity to meet quality and cooperative certifies that the loss is weather volume needs in a consistent fashion. related and not due to improper management and then is able to access insurance to write off the Once relations are established with producer loan and keep the producer in the supply chain. associations, Cuatro Pinos provides additional support in terms of organizational and community Technical assistance development. For instance, during the 2005–2006 The cooperative provides training both directly production season, the cooperative successfully to farmers and indirectly through local extension accessed US$1.5 million in public sector funds for agents and/or lead farmers linked to producer investment in supplier organizations, including associations. This technical assistance includes packing sheds, irrigation facilities and rural the establishment and monitoring of test plots housing. The cooperative maintains a team for new partners as well as ongoing training of full-time staff dedicated to strengthening for extension agents via cross visits and other partner organizations, both as businesses and as methods. In the case of partners with packing community development agents. facilities, the cooperative provides training in packing and sorting and coordinates the necessary Access to services certification visits to guarantee that facilities meet or exceed international standards. In addition, Another hallmark of the Cuatro Pinos model the cooperative—in collaboration with San Juan is access to services. The majority of services Agroexport—maintains a full-time Ph.D. researcher provided by the cooperative to its producers are working on improved production systems and included in the formal contract. In addition to new product development. The costs of technical these services, the cooperative also provides other assistance are covered by the cooperative. services to employees and members, as follows. Risk management Inputs, credit and insurance Cuatro Pinos and LA Salad manage a shared risk The cooperative provides inputs on credit to fund that allows the cooperative to guarantee producers based on the planting schedule and payment to farmers even when product is not projected volumes. The credit is then discounted sold due to problems at the port of entry or other from product received by the cooperative and logistical barriers. The fund, which receives a the producer receives the balance. Since 2011, fixed percentage of every kilogram of produce the cooperative has piloted three credit models. sold via LA Salad, is used to cover technical First, self-funding the provision of inputs on assistance from LA Salad to Cuatro Pinos in food credit to producer associations and individual safety and packaging. In addition to financial farmers led to financial management difficulties

83 A Guide to Strengthening Business Development Services in Rural Areas risk management, the cooperative also hosts the of 20 to 25 products.5 This change presents only full-service pesticide residue laboratory in several opportunities but also threatens the Guatemala, in collaboration with the Ministry of cooperative. A move into a wider range of Agriculture and Ranching. The cooperative carries products helps diversify production systems, out tests on all shipments of vegetables received contributes to profitable rotation crops and identifies problems prior to their export, thus and better soil health, and increases the reducing the risk to both Cuatro Pinos and the negotiating power of Cuatro Pinos. However, final buyer. a category manager is expected to take a stronger leadership role in relations with Access to social services the supermarket and its clients, continually The social services provided by Cuatro Pinos to develop new product offers and provide its members include access to low-cost health support—in the form of good practices—to care, educational scholarships, support to other suppliers. This implies improvements improve the quality of housing and educational in management capacity both at the central opportunities. For example, women working in cooperative level as well as the ability to the central packing shed are able to enroll in manage greater complexity at the packing shed literacy courses. These services are mostly limited and field level. to the 562 member families, who pay a nominal •• Ownership structure. As previously noted, fee to access them. The balance in cost is covered Cuatro Pinos is owned cooperatively by by the cooperative. In collaboration with LA Salad the 562 families who live in relatively close and Costco, the cooperative recently established proximity to the central offices and packing the Juan Francisco Camparini Foundation to shed. Today, these families provide a declining provide similar services to non-members. The percentage of the products exported by the foundation is funded by a small percentage of the cooperative, with the difference made up by profits of each member of the French bean supply non-member families located up to six hours chain, which during its first full year of operation from the central plant. Despite this situation, in 2008, generated US$60,000. The foundation existing members are unwilling to admit new plans to focus on the provision of health, members to the cooperative for fear of losing education and housing services, principally for control of the business and preferential access women in producer communities. to employment, health care and educational opportunities. As a result, the management team is forced to develop innovative Successes and challenges mechanisms of profit sharing to provide Cuatro Pinos is a sustainable and profitable incentives for non-member farmers while, business that benefits 5,000 smallholder at the same time, keeping the voting owners producers, provides off-farm employment happy. This balancing act is not easy but one to 1,200 women and exports nearly US$15 that is inherent to many cooperatives. million annually. As a successful farmer-owned cooperative business, the services provided and social impacts are likely to continue as long as the Best practices and insights export of horticultural crops remains profitable Build social intermediaries and international buyers continue purchasing produce. Nonetheless, there are several critical The case of Cuatro Pinos shows the potential issues facing Cuatro Pinos, including: development impact of profitable businesses that incorporate social goals. In many cases, building •• Transformation of the cooperative into a a social intermediary firm from scratch may category manager. With growing demand be prohibitively expensive or time-consuming, for horticultural products, Cuatro Pinos is especially when trying to increase management rapidly evolving from a specialist provider and trading skills. Providing support or incentives focused on three to five key crops to what is to turn existing intermediaries into social known as a category manager, with a portfolio intermediaries may be a promising strategy.

5. Supermarkets seek to reduce the number of suppliers they work with while broadening the products offered by these key suppliers. These key suppliers are then able to manage entire categories (e.g., temperate vegetable crops) year-round, hence the term “category manager.”

84 A Guide to Strengthening Business Development Services in Rural Areas

Examples might include tying support to specific the underlying business is profitable. Prior to outcomes related to farmer inclusion, income focusing on social investment from market actors, gains, risk reduction or employment generation it is critical to assure that the business itself is over a three- to five-year time horizon. profitable and stable. At that point, innovative mechanisms can be developed to increase the Reduce risks for all actors in the social impact of the enterprise. supply chain For farmers, risk reduction is codified in a Social intelligence and organizational formal contract that clearly stipulates all the agnosticism relevant information, is accompanied by technical Cuatro Pinos has been able to scale up quickly assistance and includes access to in-kind credit. due to strategic analysis of information obtained This turnkey solution makes inclusion relatively through AGEXPORT, a strong network with easy, even for the poorest provided they can public and private sector actors and a pragmatic, access land. For buyers, the cooperative focuses business-oriented focus. By positioning itself relentlessly on meeting and exceeding private as an export facilitator and organizational sector standards of quality, traceability and food development agent, the cooperative is able to safety. This, in turn, reduces the risk to buyers leverage investments by others. and makes Cuatro Pinos a more attractive partner.

Add social investment to a successful Further information business Lundy, M. (2007). Assessing smallholder participation The incorporation of specific mechanisms—the in the French bean supply chain in Guatemala: Summary document. Sustainable Food Lab Annual risk management fund with LA Salad and the Meeting, Antigua, Guatemala. International Center fund managed by the Juan Francisco Camparini of Tropical Agriculture. https://cgspace.cgiar.org/ Foundation, for instance—is feasible because handle/10568/56143

85 Case Study 5. 1 How Savings-Led Microfinance Has Improved Chickpea Marketing in the Lake Zone of Tanzania By Wendy-Ann Rowe, Catholic Relief Services

Organizing smallholder farmers into groups so to sell their produce collectively, but many that they can aggregate their production and of the groups lacked the cohesion needed to meet volume demands of buyers is fraught successfully engage buyers during the marketing with challenges. For instance, how can groups season. Most farmers sold to local buyers (“side maintain their cohesiveness when members selling”) due to lack of ownership with the group decide to sell their crop elsewhere to generate and their need for cash. immediate income to meet household needs? How can these farmer groups access working In 2006, a different model was introduced based capital loans to pay their members before on Savings and Internal Lending Communities, selling to a trader? This case examines how known as SILCs, inspired by the success of other savings-led microfinance can provide solutions nearby CRS projects. Staff within the chickpea to these challenges. project quickly saw the benefits that the SILC model could bring, particularly in the areas of financial management, group governance and The chickpea promotion project group cohesion. These skills were critical in effective farmer group formation. In the Lake Zone of Tanzania, chickpea is one of the most important cash crops for smallholder farmers.

Farmers sell their crop to middlemen and Need for financing traders for export to South Asia. Over the past The urgent need for cash at the time of harvest 20 years, demand for Tanzanian chickpea has forces many farmers to sell hurriedly to the grown steadily, with production rising from nearest buyer at low prices. This means that approximately 10,000 metric tons (MT) in the producer organizations rarely have sufficient early 1990s to about 50,000 MT in 2007. volumes of product for collective sale. The formal finance sector can offer no immediate solution Between 2000 and 2008, Catholic Relief Services to this problem as banks have yet to develop partnered with the Mwanza Rural Housing Project affordable financial products for smallholder and local farmers to increase chickpea production farmers, and they are unwilling to lend to farmers in the region and improve export marketing. The with little or no collateral. aim was to improve both productivity and market access to increase smallholder farmer incomes. SILCs were introduced in an attempt to meet smallholder demand for financing, while at The starting point was the introduction of four the same time addressing the challenge of improved varieties of chickpea. One variety was cohesiveness within farmers groups. Among the an improved “desi” chickpea commonly grown benefits of SILCs to farmers is the possibility of by farmers and processed into flour before accessing sums of capital from internal savings consumption. The other three varieties were and lending activities to meet immediate food “kabuli,” which had not previously been grown by consumption needs and for the purchase of farmers. Kabuli chickpeas are sold and consumed agricultural inputs. as a whole grain, and based on size can attract a premium price. In the chickpea project, the benefits of the SILC model were quickly translated to a second A key challenge faced by farmers was their lack organizational level. SILC groups realized that of success in selling their product. Farmers had they could work more effectively with other SILCs come together under producer marketing groups under the umbrella of a SILC Group Association

86 A Guide to Strengthening Business Development Services in Rural Areas

(SIGA). The purpose of the SIGAs were to bring would help to protect them legally during the together individual SILC groups to achieve buying and selling process. the volumes of chickpea necessary to market collectively at higher prices.6 SIGAs and their collective marketing function Relation between SILCs and SIGA SIGAs undertook the following key marketing activities: Each SILC group had between 25 and 30 members. SIGAs were made up of three or more •• Identified a trader for crop purchases. SILC groups. By mid-2009, 28 SIGAs were formed •• Signed delivery contracts. from 190 SILC groups with a total membership of •• Estimated production for sale before the harvest. 5,020 farmers. •• Managed purchase advances from the trader and distributed them to SILC groups. Members met to save and borrow, and the funds •• Ensured that the quality of the crops delivered were managed under a governance structure met the buyer’s standards. that included a chairperson, treasurer and •• Cleaned crops delivered by the farmers, stored secretary who were appointed by the member produce in the warehouse and prepared SILC groups. The SIGA structure also included product for delivery to the buyer. an extension agent assigned to the group by the partner, and one or two community resource The SIGA, with their SILC members, met to agree persons responsible for overseeing financial upon an asking price for their crops. The asking activities. The extension agent’s role was to price was then used to negotiate the actual price facilitate input purchases, link SILC members with traders. Most groups did not use cell phones to government extension services, provide some to collect information on prevailing market agricultural technical support and ensure prices before setting their asking price. This the quality of produce to be marketed. The lack of knowledge of current prices led to some community resource persons assisted primarily frustration and lack of trust between the farmer in developing SILC groups and were selected groups and traders, particularly as the prices from within the community. In many cases, they traders paid often fluctuated on a daily basis. were well-performing SILC members (perhaps a secretary or treasurer) that had shown exemplary CRS and the Mwanza Rural Housing Project were skills in SILC management. The community instrumental in developing relationships with the resource person offered his or her services to the traders on behalf of the farmer groups. As the community on a voluntary basis, although some farmer groups gained experience, they took on received payment from the SILC and SIGA. the responsibility of maintaining relationships and undertaking direct negotiations with traders. There were three subcommittees operating within the SIGA structure. These were a planning and economic committee, an input and SIGAs and their financial agriculture committee, and a management and management function administration committee. These subcommittees The other primary function of the SIGAs was convened to make decisions on the use of funds financial management. With farmers demanding and loan requests that came from within the credit throughout production and marketing SIGA membership and to make decisions on cycles and their inability to access loans from collective marketing and input purchases. commercial institutions, SILC and SIGAs acted In this process, all leadership positions as informal financial intermediaries for savings within the SIGA structure were unpaid, with and internal lending activities. Under this model, the exception of the secretary who received SIGA members contributed to operating, input, compensation for record keeping at the time of insurance and education funds. collective marketing and sale. Most SIGAs were not formally registered, yet several were taking Operating fund steps to do so as they anticipated registration At the beginning of each marketing season, SIGA committees estimated the costs that would be incurred for collective marketing. All 6. CRS and the Mwanza Rural Housing Project adapted SILC group members were obliged to contribute the SIGA model from a pilot that CARE undertook with its partners in nearby Magu District. equally to the operating costs at a rate that was

87 A Guide to Strengthening Business Development Services in Rural Areas determined by the SIGA committees. The size cash advance balance with the actual value of the of the operational fund differed from one SIGA products collected by the trader’s agents from the to another, ranging between 30,000 and 45,000 SIGA collection centers each day. Tanzanian shillings (approximately US$23 to US$35) for each SILC group. Trade commission paid to the SIGA The commission paid by buyers for each kilogram The operating costs included anticipated local of chickpea supplied was another important government taxes per kilogram sold, packaging revenue source for SIGAs. During the first year materials, allowances for the secretary and those of SIGA operation in 2007, Afrisian Ginning Ltd. that clean and sort the chickpea, storage space paid a commission of 12 Tanzanian shillings per rental and cleaning facilities. kilogram. The following years, SIGAs switched to the Export Trading Company, which paid a Education, insurance and input funds commission ranging from 12 to 20 Tanzanian In addition to the annual operating fee, SILC shillings per kilogram, depending on quality. groups were required to contribute monthly to an insurance fund, an input fund and an education Many SIGAs chose to keep 25 percent of the fund. The availability of these funds enabled commission aside to capitalize the input fund. households to access loans to meet their immediate In some cases, the fund was also used for short- needs without having to sell their crop in the field term loans to farmers once they had delivered or immediately after the harvest. Farmers could their production to the SIGA, but for which then afford to wait and sell their product through the SIGA had not yet received payment. Later, their SIGA to receive a higher price. when the commission was paid to the SIGA, it forwarded the remaining 75 percent to the SILC SILC members could apply for loans from the groups on a prorated basis (volume sold), and input and education funds through their SILC the SILC groups in turn distributed it to their group as needed. These loans incurred a 10 members (also on a prorated basis). percent fixed interest rate per month, of which 5 percent went to the SIGA and 5 percent went to the SILC group. The term for loans from the Successes and challenges input fund varied according to the specific crop production cycle. Loans from the education fund Outcomes of the 2007 and 2008 chickpea had a one-month term. production and marketing seasons In 2007, the first full year of collective sales, the The insurance fund was also available to SILC SIGAs negotiated chickpea sales with Afrisian groups in the event that a member passed away. Ginning Ltd. In total, 9,150 farmers (1,048 SIGA It was used to repay any outstanding loan balance members and 8,102 non-SIGA members) sold of the SILC member that may have originated from 1,352 MT of chickpea through SIGAs. either the SILC group or the SIGA. For the 2008 season, the SIGAs negotiated sales Traders’ advances for procurement with Export Trading Company. However, with Procurement financing at the SIGA level was the introduction of a new buyer came several another important component of the financial challenges. The Export Trading Company payment arrangements for marketing. Buyers advanced advances were not available on a regular basis funds to the SIGAs to pay for chickpea delivered and were channeled through the Export Trading by members, non-members and middlemen. Company agents located in various production These regular cash advances were required by areas. Most of the company’s agents also collected SIGAs as they did not have enough capital to pay products from middlemen, who were in direct farmers for the purchase of chickpea. competition with SIGAs, and therefore reduced the volumes that were marketed through SIGAs. The processes involved in handling cash advances This problem was exacerbated by the global and product inventory were recorded on special economic crisis, which caused a wide fluctuation forms. The forms were used to control the use in commodity prices during 2008 and 2009 of advances and the physical inventory of grain and prompted Export Trading Company to stop that came in and out of the collection centers. providing advances to SIGAs. This also affected The advances were collected by SIGA leaders— the number of farmers willing to sell through the usually the treasurer—from the traders. Cash SIGAs. In the 2008 season 2,380 farmers (946 advances were accounted for by comparing the

88 A Guide to Strengthening Business Development Services in Rural Areas

SIGA members and 1,434 non-SIGA members) sold Transparency 482 MT of chickpea. One of the benefits of the SILC model was that a group is accountable to its members with Despite the reduced collective marketing activity, respect to finances and how they were being farmers continued saving and lending activities in used. In the SIGA model, it was not clear if their SILC groups. Many of the SIGAs reconvened SILC group members knew how much money in 2009 and collective sales were extended to was being managed at the SIGA level and how it include additional crops. was being used. One of the reasons for this was the management of multiple funds, which could Challenges with the SIGA model lead to potential abuses if there are few controls Limited marketing skills in place. Many of the SIGA committees were composed of the leaders of the SILC groups. Since SILC groups are primarily for microfinance and social services, Best practices and insights few leaders had sales and marketing experience, Despite these challenges, the SIGA model holds especially when it came to quality assurance and significant promise. SIGAs were a good entry price negotiation. This led to a greater emphasis point for linking smallholder farmers to traders on microfinance activities than on marketing so they could aggregate production and maximize functions within SIGAs. profits, which would not have been otherwise Financial management concerns possible under individual sales. Lessons from the Setting aside funds for production and marketing SILC model include: activities was useful for a SIGA; however, •• Understanding what holds the SIGA the necessity of managing the education together. One of the challenges highlighted and insurance funds at the SIGA level was under the initial producer marketing group questionable. Since the education fund was model was the lack of cohesion among the being used primarily for school fees of SILC farmers at the time of sale. Under the SIGA members’ children, and not to improve knowledge model, greater cohesion of groups has been on agriculture technologies, it would have been achieved despite the challenges experienced in better managed at the SILC level. 2008 and 2009. If money management is the There was a danger that demands on the glue that holds SILC groups together, it might insurance fund could exceed the resources be expected that the same will be true for the available. It may have been wise to begin SIGAs. In this sense, SIGAs should maintain discussions with a national insurance company and strengthen their financial functions but so that the premium could be paid to that avoid competing with SILCs. company, which would have the fund reinsured •• Understanding the core benefits of as required by law, thereby reducing risks to the the SIGAs for participating farmers. A SIGA and its farmers. SILC farmer can find tremendous value in participating in a SIGA for the purposes of The management of multiple funds at the SIGA collective marketing. Some traders, such as level posed a challenge for bookkeepers who did the Afrisian Ginning Ltd. also saw value in not have adequate skills to capture data or an working with the SIGAs, especially if there appropriate management information system to was a potential to include more farmers. At store and analyze the data. the time of the study, the volume of goods that Afrisian Ginning Ltd. purchased from the SIGA governance SIGAs represents only about 1 percent of their The SIGA structure was complex. One of the key general portfolio. This confirmed that groups considerations for sustainability and possible the size of SILC are unlikely to be viable units replication was how to ensure a structure that for collective marketing. is both robust and manageable. The primary •• Understanding how to leverage the group’s purpose of the SIGA was to facilitate collective finances. The focus of SIGAs was to facilitate marketing. The structure and role of the SIGA the collective sale of a commodity, while subcommittees should therefore have reflected financial intermediaries such as savings and this purpose. Those activities that have little credit cooperatives can design appropriate to do with collective marketing and production financial mechanisms to support the needs of should have been removed from the SIGA level. SIGAs. SIGAs were designed to act as social

89 A Guide to Strengthening Business Development Services in Rural Areas

collateral or a guarantee for its members. Group transferable, the demands at the SIGA level collateral is a favored alternative to physical were greater and required better skills. collateral for many microfinance institutions •• Ensure sufficient assistance is given to SIGAs to that engage with poorer communities. develop their negotiation and quality management skills, particularly as they work to develop long- term sustainable trading relationships. Making the SIGA model work better •• Work with groups over a number of cycles Parts of the SIGA model need to modified to determine when SIGAs can manage and strengthened to make it sustainable and marketing and financial management replicable after external assistance has ended. activities on their own. Among the most important are:

•• Simplify the structure, activities and fund to focus Further information on the core purpose of the SIGA model—to mobilize Charles, E. (2009). Savings groups and marketing farmers for more effective collective marketing. associations in the Lake Zone, Tanzania. In: •• Reinforce the skills necessary to record Ferris, S., Mundy, P. and Best, R. Getting to market. From agriculture to agroenterprise (pp. and maintain the balances of the funds 184–196). Baltimore, Maryland, USA: Catholic deemed essential at the SIGA level. While Relief Services. http://static1.1.sqspcdn.com/ the techniques used at the SILC level were static/f/752898/9984008/1296500345453/ getting-to-market.pdf?token=SR0jpkHDrmmupQ TRDU0CcimjE6c%3D

90 Case Study 5.2 Facilitating Financial Linkages for Smallholder Producers in Nicaragua By Wendy-Ann Rowe and Jefferson Shriver, Catholic Relief Services

Access to affordable finance is critical for through specific interventions designed to improve smallholder producers to successfully engage in value chain engagement, post-harvest management value chain initiatives. However, in many cases and commercialization. The crops involved were financial institutions are reluctant to lend to fruits, vegetables (including roots and tubers), red smallholder producers as they lack the collateral and black beans, coffee and cocoa. needed to secure a loan and assure the lender of their ability to repay. In many situations, the Project activities were centered on investments role of an external intermediary is important to in infrastructure, development of commercial bridge the gap between smallholder producers and capacity and the transfer of appropriate financial providers. This case study highlights the technology. Investments in infrastructure role of Catholic Relief Services and its implementing included the establishment of packing centers partners to create effective linkages between for vegetables and coffee, cold rooms, community financial providers and smallholder producers. storage centers, a bio-fertilizer processing plant, a dry coffee mill, ecological wet coffee mills, systems for the drying and fermentation of cocoa The ACORDAR project and infrastructure for water. The intention was that small- and medium-scale farmers would be In September 2007, CRS took the lead in the owners of the production and post-harvest implementing a global development alliance infrastructure, thus increasing their ability to project funded by the U.S. Agency for compete more effectively in the market. The International Development. The project, Alliance development of commercial capacities aimed to Create Rural Business Opportunities through to strengthen the access of the cooperative Agro-Enterprise Relationships (ACORDAR), was enterprises to market intelligence, enhance their designed to increase the income of poor families, abilities to manage their businesses, and increase ensure permanent employment and strengthen their exposure to opportunities in regional and the commercial capacity of 6,000 poor rural international markets. families in 44 municipalities in Nicaragua. The project was carried out in alliance with municipal In addition to these investments, access to governments and the private sector. It provided finance to support sustainable production technical assistance to small- and medium-scale activities was a focal point of the project. Nicaraguan farmers to produce agricultural goods Because farmers experienced great difficulty in based on market demand. It was implemented accessing finance for their production activities, by CRS, Lutheran World Relief, the Aldea Global CRS and partners worked hard to establish Association of Jinotega and TechnoServe. strategic alliances with microfinance institutions and international investors. Relationships The project aimed to strengthen 85 smallholder were established with organizations such as cooperative enterprises and 8 cooperative Root Capital, Oikocredit, Rabobank and other associations—90 percent of the 6,000 targeted providers of wholesale loans to these microfinance producers were organized in these cooperatives. institutions. This has allowed many cooperative The goal was to increase sale of harvests and associations in the coffee sector to borrow at increase income by US$57 million. This work more favorable rates and thus make better loans generated more than 12,000 permanent jobs to their member cooperatives.

91 A Guide to Strengthening Business Development Services in Rural Areas

Alternative sources of financing under medium-scale farmers associated specifically the ACORDAR project with coffee cooperatives. This credit was provided for the purposes of pre-harvest loans and trade Financing for the farmers was sourced from credit for the two coffee harvests targeted for the a range of financial mechanisms, including remainder of the project. microfinance institutions. It was often advantageous for smallholder producers to Loans provided by Root Capital were given diversify their financial streams so that they directly to the second-tier cooperatives in the could assess the most appropriate financial project, which had well-established credit mechanism for their production activities. programs and complex accounting software to Financing for the ACORDAR project came from a manage the loan portfolio. The cooperatives number of mechanisms, several of which required also had well-trained credit promoters and loan the support of an intermediating organization, portfolio managers on staff. Once funds were such as CRS. received from Root Capital, they were on-lent or offered to the base cooperative or directly to Financial sources the farmer. The second-tier cooperative earned Financing from social investment funds nominal interest on this loan. The duration of the Most traditional investors look for a financial loans ranged from 6 to 18 months. return on their investments that is on par with In-kind/non-cash investments from other market rates, which often makes financing value chain actors inaccessible and unaffordable for smallholder In addition to financing from socially minded producers when combined with standard investors, a number of smallholder producers collateral requirements. A social lender, unlike were able to find alternative and creative sources a traditional lender or commercial bank, of financing. For example, there were a number provides an investor with a dual return on their of bean and vegetable producers accessing in- investments—financial and social gains. Loans kind (non-cash) investments and co-investments are not interest-free but are provided at low from commodity buyers, as well as investments rates, as the primary goal is the social return. from input suppliers for production and post- The social gain for the investor is defined by their harvest processing and storage. These types of ability to support underserved groups in need investments helped jumpstart the production of financing, while still earning a small financial activities of smallholder producers, particularly return on their investment. Root Capital and if the up-front investment needed to support Oikocredit are examples of such lenders. In the production activities was so great that it became ACORDAR project, there was a large increase an obstacle to the producer’s ability to meet in the numbers of coffee producers accessing market demand. second-tier loans (also known as wholesale loans) from social investment funds. Many producers who succeeded in harvesting their crops often lacked the proper cleaning, In the case of Root Capital, financing provided to packing and storage facilities to ensure that cooperatives was dependent on the cooperative’s their crops successfully made it to market; these ability to successfully market their coffee to farmers required additional support. In-kind international buyers and roasters. As part of its investments for post-harvest activities assisted social mission, Root Capital was also concerned smallholder producers when they were unable that the cooperatives they supported were to invest in these facilities themselves. However, engaged in ecologically sound cultivation and there were times when the dependency on these post-harvest practices, combined with a focus in-kind investments compromised the negotiating on quality and market access. Cooperatives that power of the farmer and their ability to secure an met these criteria were in a better position to ideal price for goods. negotiate for funding from Root Capital. Loans provided by Root Capital were focused on pre- Encouraging farmers to secure financing from and post-harvest activities that enabled coffee other value chain actors was a mechanism that cooperatives and their members to produce supported their sustainable participation in the the optimal yield and quality of produce at value chain, especially in situations where there appropriate levels of scale. In partnership with were few opportunities for significant external ACORDAR, Root Capital expected to extend up investments such as those provided under the to US$4 million in credit services to small- and ACORDAR grant. However, as with any financial

92 A Guide to Strengthening Business Development Services in Rural Areas service, it was imperative that the farmer plots and used minimal inputs. Financing such understood the terms of the loan and was able to small-scale activities was often seen as costly evaluate the appropriateness, affordability and and a risk for financial institutions, especially limitations of the resource being offered. given that productivity for this commodity was generally low. Bean farmers were some of the poorest farmers in the ACORDAR project. In Working with microfinance institutions response to the unmet demand for financing Many of the microfinance institutions that bean farmers, CRS earmarked project funds to be partnered with the ACORDAR project had prior used as an advance to bean farmers for storage experience in designing agriculture loan products and processing. Funds for these activities were and operated an active agriculture portfolio. generally allocated at the cooperative association Despite their experience in this area, the creation level. This mechanism was similar for coffee and of agriculture loan products using alternative cocoa and plays a commercialization function in forms of collateral has yet to occur. This was the end, as more storage equaled greater volumes especially the case when smallholder producers eventually sold to create economies of scale. lacked the traditional collateral requirement, which resulted in bottlenecks and delays in loan processing and affected the farmer’s ability to Establishing links with financial meet key production targets or time frames. providers and the role of intermediaries CRS and its partners established strategic In some cases, microfinance institutions were relations with microfinance institutions, donors more willing to expedite the loan origination of the microfinance institutions, and socially process when they were aware of technical minded investors. Many of these relationships assistance from organizations, such as CRS, existed before the ACORDAR project, whereas Lutheran World Relief and TechnoServe, to others took effect during its implementation. support production and post-harvest management activities. In the case of the social investment In the case of socially minded investors, such funds, the main concern with qualifying for as Oikocredit and Root Capital, having the a loan was the need for coffee cooperatives to integrity and technical support of partner demonstrate market demand and their ability to organizations, such as CRS, was helpful in meet this demand and find a buyer. This was not securing the relationship between the lender a problem for the coffee cooperative associations and the cooperatives. In many instances, the operating under ACORDAR because they already goodwill of an organization and the resources had a track record of forward contracts for export invested in capacity building for smallholder to international buyers. producers served as an implicit guarantee for the investments made to these cooperatives. Primary uses of loans The loans sourced by the farmers under this It is important to note that the role of project were used to finance inputs (seed, intermediation—in cases where it is deemed fertilizer and labor) for production in almost all essential—should be viewed as temporary. of the crops. In the case of coffee production, Supporting organizations such as CRS should loans were used to finance labor costs associated seek to build the capacity of smallholder with the harvest, storage and rental of processing producers to understand financial mechanisms facilities and, to a lesser degree, inputs during and their appropriateness for various phases the year to maintain the perennial crops. of the production cycle, rather than provide For cocoa producers, credit was provided financial support. Farmers must also be aware of for production (pruning and weeding) and the limitations of each financial solution so they processing. Farmers that were producing fresh can make informed decisions. fruits and vegetables used their loans primarily Finally, helping farmers build strong negotiating for production technologies (row covers and skills was critical to ensure that they could plastic), inputs and labor. advocate not only for affordable financing, but Producers of other crops, such as beans, did not also to establish mutually agreeable terms to use credit primarily because they cultivated small support production and marketing activities with core value chain actors.

93 93 A Guide to Strengthening Business Development Services in Rural Areas

Successes and challenges specific needs of each commodity, especially because production cycles and associated cash Approximately 15 percent of producers supported flows vary by crop. in the project received loans from microfinance •• Microfinance institutions and other financial institutions before the project began, which institutions need to accept a broader range increased to approximately 30 percent by the of collateral substitutes rather than requiring end of the project. Some farmers diversified only traditional collateral (properties and other their financing sources by accessing loans from physical assets), which is unlikely to exist for cooperative associations or base cooperatives. The most smallholder producers. This needs to be number of farmers who accessed loans through further developed and is essential for lenders their cooperatives increased to around 65 percent to make a deeper impact on smallholder during the project. Average loan sizes varied production activities. as the project worked with a diverse number of crops. In the case of fresh fruits and vegetables, loan sizes were as high as US$7,000 to US$8,000 Best practices and insights per hectare, whereas loans provided for coffee in the form of an advance were in the range of Win-win relationships US$150 to US$2,400 per hectare. Smallholder producers established win- win relationship with many microfinance institutions and other financial institutions as Best practices and insights they worked to support the financial needs of The following key elements were necessary to smallholder farmers. The social performance ensure a well-functioning relationship with movement became an increasing focus for many financial institutions that was beneficial to both microfinance institutions in Latin America as farmers and lenders: they work to align their social mission with their financial performance. •• An agreement between the financial provider and the cooperative institution representing Key role of an intermediary to the farmers is necessary to clearly express the facilitate linkages between farmers demand for credit and agreed-upon terms for and finance providers loan use and repayment. ACORDAR’s ability to reach a substantial •• The lender must understand the relationships number of farmers and successfully link them between key stakeholders and other value to markets was dependent on the role played by chain actors. The lender should have field-level CRS and its partners in catalyzing and facilitating knowledge of those responsible for assisting linkages with a range of financing mechanisms. in production, processing, post-harvest Agricultural development projects, which aim to management and commercialization in order progress from pilots to programs with a wider to assess the potential for profitability and the impact, have to ensure that both technical and producers’ ability to repay loans. financial support is available, and that the two •• Microfinance institutions and other financial act in tandem to meet the specific production and institutions need to have the technical marketing needs of farmer groups. competency and agricultural knowledge to develop loan terms that are suitable for the

94 Case Study 5.3 Establishing a Warehouse Receipts Program: The Experience of the Eastern Africa Grain Council

By Sophie Walker, ACDI/VOCA, Kenya

Throughout most of sub-Saharan Africa, the represented by this warehouse receipt enable production, purchase and storage of commodities control over the commodity and because the is based on cash, not through formal financing document can be used as collateral, it allows the institutions. For example, in East Africa a depositor to access services, such as financing conservative estimate of the value of the maize and commodity exchanges. harvest is US$1.2 billion. At least 30 percent of this maize is sold onto the market at harvest. This case study describes the experience of the This translates to expenditure by traders of Eastern Africa Grain Council (EAGC), which approximately US$400 million for just the maize was established by the private sector with harvest, which will take up to 11 months to support from the U.S. Agency for International sell. The same pattern is reflected in every other Development to build the grain trade around staple commodity. The immense amount of cash structured processes: grades, contracts tied up in commodities means there is little cash and arbitration, among others. To address available for investments that might help make aggregation, storage and finance issues, the trading more efficient, such as newer trucks, EAGC started a warehouse receipts program. The dryers and warehouses. council saw its role as the independent trusted regulator, bringing together warehouse facilities, It also means that without financing there is depositors, financial institutions and buyers. limited cash available for buying commodities, It ensures a transparent system that links the which causes prices to dip proportionally to the sectors together. volume produced. One solution is to finance commodities in certified storage through a warehouse receipts system to increase the cash How the warehouse receipts available for purchasing commodities. This system works enables traders to compete with each other to buy Warehouse receipts systems are complex, from smallholder farmers, which tends to reduce involving many players working alongside each the dip in the price at harvest and reduces very other but handling different areas. An effective high prices later in the season. system needs: In a warehouse receipts system, individual A regulated warehouse offering public storage. depositors place their harvested crop in •• Professional warehouse operators with warehouses offering storage services (they are •• reputable skills in handling and storing grains. known as “public warehouses” in contrast to Insurance policies covering a variety of risks. “private warehouses,” which do not offer storage •• Depositors willing to pay a premium to store services to the public). Public warehouses can be •• graded commodity in formal warehouses. owned by the government, private companies or Buyers willing to purchase graded commodity. individuals. The depositors receive a warehouse •• Market intelligence (e.g., analysis of receipt document, which represents their title •• production, consumption, trade flows from to the commodity. The contractual agreements other surplus areas that will affect prices).

95 A Guide to Strengthening Business Development Services in Rural Areas

•• Financial institutions willing to develop loan commodities in goods received notes or convert products to finance commodity in storage them to warehouse receipts when they need to and contribute significantly to the program’s access finance. It is possible for a number of potential success. smallholder farmers to deposit their smaller tonnages, which can be aggregated into one Initially, EAGC held several stakeholder meetings warehouse receipt that has to be in the name of with commercial banks, traders, farmers and one organization or individual. maize processors to ascertain interest and establish parameters for the system. The project EAGC charges the following fees: received support from the Financial Sector Deepening Trust of Kenya. •• A per-metric-ton fee to each warehouse for any goods deposited (whether a warehouse receipt EAGC plays two roles in the system: (1) As is issued or not). This fee mostly covers the the regulator, it has to be seen as competent ongoing inspection costs and is payable when at regulating the system. (2) It plays the the goods are lifted from the warehouse at the complicated role of promoting, training and end of the storage period. publicizing the system so it can grow. The •• An obligatory registration charge for the EAGC has to balance smallholder inclusion with warehouse receipt issued, which is collected by commercial viability (i.e., looking first to the the warehouse from the depositor. large traders and processors to bring increased •• Warehouse receipt verification fees, which are volume into the system). generally collected from the bank.

As the regulator, EAGC receives applications Based on the fees being charged, the and payment from warehouses to be certified. administrative costs of the warehouse receipts EAGC contracts outside specialists from program should break even at about 120,000 international inspection companies such as metric tons (MT), subject to the warehouses being Bureau Veritas, the Audit Control and Expertise mostly above 5,000 MT and running at 75 percent Group and Société Générale de Surveillance to capacity. EAGC estimates that when the system assess the warehouses against a predetermined covers an increased volume, it will need one full- set of criteria, including physical structures, time manager and assistant with the occasional management systems, staff competence, assistance of other staff. insurance policies and financial records. The certified warehouse charges depositors If a warehouse passes the certification process, it handling fees (one-off costs, Table 3) and monthly then enters into binding contracts with EAGC on storage and fumigation fees (Table 4). These add how it will operate, handle goods being deposited up on a monthly (or partial-month) basis. Ideally, and manage the EAGC-provided warehouse receipts. these fees should be charged prior to lifting the goods from the warehouse rather than at the end A warehouse that has been certified and has of the month. However, this has running cost goods in storage needs to be inspected every 3 implications for the warehouses, which need to 5 weeks. This entails ad hoc visits from the operating capital. The cost of financing per month independent inspection companies to each site. depends on the harvest price and the percentage Inspectors reconcile stocks with records and test that the bank will finance. For example, if the commodity quality parameters. harvest price is 1,400 Kenyan shillings for a 90-kilogram bag and the bank advances 80 The EAGC stipulates the minimum tonnage each percent of that value, the finance will be based for each warehouse receipt—this represents a on the loan at 1,120 Kenyan shillings for a balance between the commercial sectors’ desire 90-kilogram bag. Equity Bank in Kenya initially to increase efficiency and the smallholder charged financing fees of 12 percent annually on farmer’s capacity to deliver volume. It can take 80 percent of the harvest price. Equity Bank has several loads from smallholders to aggregate subsequently reduced the rate to 11 percent. The the warehouse receipt tonnage—as each load is rate is determined by a number of factors in the delivered, a goods received note is issued until financial markets. the volume meets the minimum tonnage for the warehouse receipt. Depositors can keep their

96 A Guide to Strengthening Business Development Services in Rural Areas

Table 3. One-off costs charged by warehouses to depositors. storage and finance in Kenya was not covered by significant price increases in the marketplace. Cost item US$ per metric ton (MT) Banks are wary of investing Eastern Africa Grain Council costs 2.20 The majority of banks in Kenya have been reluctant Warehouse operating costs 4.00 to develop financial products against warehouse Weighing and bagging 1.00 receipts. Their concerns revolved around whether Total cost per MT 7.20 the central bank would accept warehouse receipts as collateral and whether contract law was Table 4. Monthly costs charged by warehouses to depositors. enforceable. An in-depth analysis—which provided Cost item US$ per metric ton evidence to the financial sector that contract-based (MT) per month warehouse receipts and collateral in the form of a Storage 0.47 commodity were acceptable to the central bank and Fumigation 0.80 enforceable legally—was not sufficient to encourage Financing at 12% annually 0.15 banks to offer financing to controlled commodities in storage. Many of the large international banks Total cost per month per MT 1.42 reported privately that they were waiting to see The system is expensive to establish—warehouses the system work. They wanted to be assured need upgrading, warehouse staff need to improve that disputes can be resolved and that the EAGC their storage management skills and insurance can survive as a professional regulator before needs to be paid. These additional expenses participating. Equity Bank so far is the only bank are rarely balanced with significant increases to have developed a financial product to serve the in income or tonnages in the first years of EAGC warehouse receipts. operation. During this initial period sufficient funds are required to subsidize these costs and Changing banks’ loan requirements the collateral inspection visits. Furthermore, Equity Bank has evolved from a microfinance depositors need training, and the integration institution. It has been aggressive in trying of the banking sector into the process requires to move new financial products toward the considerable work. previously un-serviced clients, in particular the smallholder farmer, but it has at times struggled to adapt to the concept of having Performance of the system and the valuable collateral to protect a loan. There is still challenges that are being faced an inclination to want an individual’s banking history rather than accept the asset value. Low production, government policies and low prices that inhibit growth Belief in and availability of In the first crop year 2007–2008, more than insurance policies 1,000 MT of produce passed through the system. The probity of the system is important. EAGC has Seven of the 10 warehouse receipts were financed. put in robust systems to investigate operators’ The warehouse receipt holders realized a profit capacity to participate in a warehouse receipts after costs of around US$88 per MT. However, system and check that everything is running as the two subsequent crop years (2008–2009 and planned through the season. Additionally, the 2009–2010) experienced significant deficits in EAGC requires that the certified warehouses maize—more than 1 million MT per year, which is have specific insurance policies in place prior to 30 percent of the total consumption. In the first certification. However, financial institutions are of these years, government interference in the still wary. They often do not see the insurance maize market made investment in formally stored policies on the stock as sufficient indemnity. In commodities too risky. The market price then part, this is because of limited experience in trade stabilized around import parity and did not move finance within the banking sector. Banks are significantly for 18 months. Millers were able to unable to judge risks on commodity lending, which buy or import maize at around the same price from increases their reluctance to participate. This is month to month. Therefore, the costs of formal further complicated by government interference in marketing, making price signals hard to read.

97 A Guide to Strengthening Business Development Services in Rural Areas

Competitiveness of the warehouses Minimum tonnage for the warehouse receipt has still to be resolved. Whereas the large commercial Getting the warehouses to a standard of players want larger tonnages to enable simplified professional management equivalent to and reduced cost procurement, there is international collateral management is costly. considerable push by donors to accommodate Furthermore, the profit warehouses receive on the smallholder farmers’ much smaller volumes. handling and storage is minimal, and often the Kenya has reduced its warehouse receipt storage will be empty for a number of months minimum tonnage from 100 MT to 50 MT. each year. Elsewhere in the world, loans on these structures would take 10 to 15 years to repay, but in Africa most loans are expected to be repaid Best practices and insights in 3 to 5 years. Most private sector investment in warehousing therefore targets speculative profit Investment in time and money on commodities as a method to repay loans, The time required for developing a warehouse rather than offering public storage services. receipts program depends on a number of factors:

Participation of regulator •• The existing market systems. EAGC has a wider role than just regulating •• Infrastructure for suitable warehousing or promoting the warehouse receipts system. already in place. At times it has been difficult to commit the •• Whether crop production is relatively stable necessary staff resources, particularly in two from year to year. nonperforming years, to build the overall systems •• Whether markets are destabilized by public required to make the system function effectively. sector interference.

Minimum tonnages and aggregating It is recommended that an initial pilot program smallholder production should be for at least 5 years with a budget of approximately US$5 million to US$10 million. Most financial institutions do not want to take The budget will need to cover: (1) setting up the on many small loans, each requiring the same regulator; (2) providing grants to warehouses time to administer as a much larger loan. to improve their facilities, which should be Good practices in banking indicate that a loan matched with private sector funds; (3) subsidizing against commodity collateral should not be on increased insurance costs; (4) inspection costs an asset worth less than US$15,000. However, (possibly international collateral management smallholder farmers cannot achieve these until the systems are in place); (5) the regulator minimum tonnages alone. costs until such time as the volumes make it affordable; (6) significant support to certain Many implementers try to persuade groups to financial institutions to develop warehouse aggregate their tonnage for sale to achieve better receipt financing products; and (7) the value. However, in order for a group of people understanding of the financial or trade risks they to deposit collectively into a warehouse receipts are exposed to. system and receive one receipt, they have to be in total agreement as to: It is relatively easy to establish a pilot warehouse receipts program managed by a donor-funded How long they will store the commodity until •• project. The real challenge is building long-term they sell. trust in the systems and the scale of operations What other sell/buy triggers they will react to. •• within tight project funding horizons. •• Who will be responsible to watch the market and make the sale. Trust and confidence •• How they will distribute costs, losses and profits. •• The fact that once the commodity has been Trust and confidence in the systems can be built deposited in the warehouse, regardless of if large-scale traders and processors achieve whether they may have all received 60 to quick wins and volumes grow significantly each 80 percent of its harvest value, they cannot year. This helps establish strong private sector access the balance until it is sold with the support for both the system and the regulator, group’s agreement. and encourages the financial sector that this is a profitable financial opportunity.

98 A Guide to Strengthening Business Development Services in Rural Areas

Volume and scale work with farmer groups to understand the advantages and constraints of group marketing. A warehouse receipts program needs volume to The groups should build their understanding of be viable. The only way to build to significant how markets work so they can judge whether scale that generates its own momentum in a short delivering and receiving warehouse receipts is in time is to concentrate on large-scale commercial their interest. They should also build long-term buyers who have the logistic or financing needs relationships with trading partners who will buy addressed by commercial storage. The regulator their commodity either directly from the farm or faces a significant challenge if it becomes involved from the warehouse receipts. in training smallholder farmers and being responsible for their inclusion in the system. It is Market intelligence easy for the regulator to become distracted by the needs of the smallholder farmer, while ignoring Sufficient market intelligence is needed to enable the need to build to scale quickly. depositors, financiers and buyers to anticipate market movements. Benefits for smallholder farmers Consider alternative options Initially, most of the benefits for smallholder farmers from a warehouse receipts system are Warehouse receipts programs are complex. They indirect. Regional studies show that 2 to 3 should be developed through dedicated projects percent of smallholder farmers sell 50 percent or as well-funded components of a project with of the total maize sold by smallholder farmers, wider development objectives that address a further 20 to 35 percent sell the remaining minimum standards, the use of contracts and 50 percent, 10 percent of those farmers buy development of the regulator. In some situations, back later in the season and 40 to 60 percent inventory credit schemes are more likely to are buyers of staple grains (Jayne et al., 2010). succeed and continue beyond the life of a project. Therefore, support to the market by warehouse However, they too need sustained effort. receipts systems indirectly increase smallholder farmer income at harvest and reduce some of their later expenditure. If prices are very low, Further information the system allows farmers to deposit into stores Coulter, J. Warehouse receipting, loss reduction and the (if they can meet the minimum requirements) development of value chains for grains. (2010). In: FAO/World Bank workshop on reducing post-harvest and wait for prices to increase. This reduces losses in grain supply chains in Africa: Lessons the surplus of crops on the market and enables learned and practical guidelines (pp. 16–17). Rome, prices to plateau rather than continue to drop. Italy: Food and Agriculture Organization of the United Nations. http://www.fao.org/3/a-au092e.pdf Donors often want quick results that address Jayne, T. S., Mason, N. M., Myers, R. J., Ferris, J. poverty and social issues simultaneously while N., Mather, D. Beaver, M., …Boughton, D. (2010) establishing sustainable warehouse receipts Patterns and trends in food staples markets in systems. In practice, this is difficult to achieve. eastern and southern Africa. MSU International The first five years of a warehouse receipts Development Working Paper No. 104. East Lansing: Michigan State University. program should concentrate on getting the system to work effectively and efficiently with Sargis, B. (2009). Role of agricultural commodity exchanges in price discovery and risk management large-scale commercial buyers and to benefit for grains; Implications for East Africa. Washington, smallholders indirectly. The following years can DC, USA: World Bank. then focus on the challenges associated with Walker, S. (2010). ICT to enhance warehouse receipts integrating smallholder farmers. systems and commodity exchanges in Africa. USAID Briefing Paper.https://www.microlinks.org/sites/ Integration of smallholder farmers microlinks/files/resource/files/FACETWRSCEXv2.pdf If there is already a warehouse receipts program in operation, development organizations should

99 Case Study 5.4 Inventory Credit Improves Farmers’ Incomes and Food Security in Niger

By Jonathan Coulter, NR Group, United Kingdom

Niger has a single rainy season, which is typical inventory credit. A rough estimate of the total of many African countries. Farmers that practice expenditure by FAO and collaborators to promote rain-fed agriculture have only one harvest to this innovation was US$4.7 million. An estimated satisfy home and market requirements for an that 12,500 male and female farmers have made entire year. They often lose out in marketing their use of the inventory credit system. crop due to seasonal price variations, lack of liquidity and lack of market knowledge. They sell at low prices and sometimes have to buy back How the inventory credit system works food products for home consumption at higher Producers deposit products in secure warehouses prices in the lean season. where they are subject to quality inspection, store hygiene and pest control. MFIs provide the An inventory credit approach seeks to increase producers with financing against the security producer prices, help farmers store more food of this stock, allowing them to sell the product for the lean season and usher in a virtuous cycle later in the season when prices have risen. of crop intensification and marketing, while Credit is normally provided as a fixed “advance improving food security for local families. The rate” (i.e., a percentage of the collateral value of approach makes agricultural markets work more the stock at the time of lending). In effect, the efficiently, mitigates seasonal price variability and producers finance the remaining 30 percent, results in greater production and self-sufficiency and this provides a cushion to protect the MFI if in food. Hence, inventory credit can be seen as a prices drop and producers lose on the operation. hybrid “private-public good.” Producers pay interest in the range of 2 percent In Niger, the Food and Agriculture Organization of to 2.5 percent per month, and the MFIs must the United Nations (FAO) promoted this approach pay about 1 percent a month for refinancing by under the Belgian-funded “Inputs Project” (1999– commercial banks.7 FAO strongly encourages 2007) and continued to do so under a successor producers to invest the credit in income- project funded by the European Union (“Project generating activities to repay the loan, and the for the Intensification of Agriculture through warehoused commodity acts as a guarantee of Reinforcement of Community Input Stockists”), last resort. In practice, however, producers use which started in mid-2009. The main participants much of the credit for consumption purposes. in the project were individual producers (male Producers participate in the system through and female), producer organizations, microfinance their producer organizations. The producer institutions (MFIs), commercial banks and organizations build and manage the crop stores, supporting agencies, principally FAO. The total handle relations with the MFIs, distribute the cost of the “Inputs Project” was around US$7 million over three phases; it was estimated that roughly one-third can be attributed to 7. These rates are low by the standards of most African the inventory credit component. Additional countries and reflect the special circumstances of unquantifiable sums were spent by a range of countries belonging to the West African (Francophone) Monetary Union, where the currency is pegged to the projects and nongovernmental organizations Euro. MFIs sometimes have difficulty breaking even (NGOs) that supported the development of when they charge less than 2.25 percent per month.

100 A Guide to Strengthening Business Development Services in Rural Areas credit to members and collect funds required credit, which is a relatively low-risk product, to repay the credits. Producer organizations to build up their clientele and revenue in rural typically have 20 to 30 members and come areas. In practice, however, MFIs are often together in unions, and many unions are further young institutions with limited presence in rural joined to form federations. While producers adopt areas and international organizations like FAO, a collective approach to warehouse management development projects and NGOs have taken and credit relations, the approach to ownership the lead in promoting inventory credit. There is and sale of goods is individualized. Producers some logic in this, given the “public good” aspect deposit their products in individually marked of the product, but it is vital in project design sacks and once the credit has been repaid and that an MFI is capable of picking up a project the stores opened, they are responsible for when it is winding down and driving it forward. disposal of the goods, for example selling them Whoever promotes the practice needs to form a or consuming them at home or at social events promotional team and develop a manual of good like weddings. There are cases where producer practice along the lines of the one developed in organizations market goods collectively, but this Niger (FAO and PDSFR, 2006). has so far been rare. This individualized approach is not only evident in Niger, but is used in some Given the convergence of private and wider other schemes, for example in the village granary societal objectives, the practice of inventory system in Madagascar. credit should be introduced to producers using a social marketing approach, which is defined Producers are encouraged to use the inventory as “the systematic application of marketing credit system with non-perishable crops that concepts and techniques to achieve specific have a strong seasonal price pattern, which behavioral goals for a social good.” There is an enables them to make a profit in most years. In important distinction between social marketing Niger, these include grains, pulses, oilseeds and and marketing for a purely commercial nature— dehydrated horticultural crops. Some producer social marketing is a collaborative effort between organizations already possess warehouses, various MFIs and publicly funded institutions typically structures holding about 500 bags that are prepared to invest more than the MFIs each (equivalent to 50 metric tons of millet would want to invest on their own because of the and sorghum), and on occasions they rent wide range of societal benefits. them from private individuals. Often, however, producer organizations do not possess sufficient As with conventional marketing operations, warehousing capacity, and FAO or another donor- a marketing strategy needs to be developed funded institution helps build them, with the and adapted to the needs of producers. The support ranging from the provision of designs, strategy must include details of the inventory key construction inputs and labor, to a full credit system itself, how it will be priced turnkey operation.8 and promoted, and how it will be extended geographically. The marketing process is not a linear one. The credit system and other Steps in establishing an inventory elements of the marketing strategy are modified credit system according to lessons learned. Ideally, MFIs should take the lead in promoting Before introducing the system to producers in inventory credit schemes. It is in their own a particular locality, the team needs to assess self-interest to develop and promote inventory the demand and feasibility for the targeted crops and communities concerned, with the full participation of the producers and the financiers. 8. The Malagasy Village Granary system in Madagas- car contrasts with that of Niger and other countries The team first analyzes available price series data because it developed without significant donor support and calculates the costs involved to determine in warehouse construction. The granaries are usually whether the operation is likely to provide a domestic rooms or stores that farmers have fitted out reasonable financial return in average years, at their own expense for storage of paddy, and each and whether the producers can bear the risks in granary holds the stock of a few collaborating farmers. However, in contrast to Niger, there has been much years when prices move unfavorably. Chapter 4 more external support to establish viable cooperative of the report by Coulter and Mahamadou (2010) rural finance networks, through which the village illustrates the type of analysis required in the branches (“caisses rurales”) provide the necessary case of millet and cowpeas. finance. This external support has proved more successful in the case of Madagascar.

101 A Guide to Strengthening Business Development Services in Rural Areas

The team must systematically test the inventory a local matter, extreme circumstances need to be credit concept among producers and determine guarded against (e.g., where land-owning male their needs by presenting relevant costs. This farmers with trading interests monopolize the helps project design teams understand the use of donor-funded storage facilities, thereby producers’ perception of the credit system and crowding out other players, such as women and teases out the main benefits and obstacles that youth). However, monitoring should focus mainly may be encountered. For example, profit and on adoption as it is a good, albeit imperfect, food security motives may not be the only factors proxy for the socioeconomic benefits producers for producers adopting inventory credit. They derive. To put it another way, if producers are may value it as a form of forced saving, and as increasingly using inventory credit, they are a way of locking up produce away from prying almost certainly benefiting from it. relatives or reducing temptation to dispose of them at weddings or funerals. Some producers are unlikely to adopt the practice because of its Successes and challenges centralized nature and the discipline it demands In Niger, the inventory credit system has been (i.e., the need to store produce under lock and operating for 10 years. In 2008–2009, lending key at a central location and to agree to a single rose to nearly 600 million CFA francs (about calendar for constituting the stock, financing, US$1.4 million), representing an estimated 5,000 repayment and opening the store). metric tons of products. The main crops stored were groundnuts and millet, followed by cowpeas, Regardless of such concerns, the team should paddy rice, sesame, tiger nuts, sorghum, dried inquire about the producers’ willingness, as well paprika and hibiscus leaves. According to as prospective profitability and risk. Provided that FAO’s monitoring, there were 125 producer the producer organizations can deal with matters organizations (some of these appeared to be of quality and security, price constitutes the main unions rather than local producer organizations), risk factor. Seasonal price movements can vary and 12,500 “pratiquants” (i.e., individual widely from year to year and can cause producer depositors, often with more than one depositor organizations to lose money and make it difficult per household). Men tend to dominate the for them to repay their loans. For example, an activity, but women are important participants analysis of past price data might show that: with some crops, notably groundnuts. •• In an average year, prices increase by 25 Significantly, the leading producer federation percent, net of weight loss, warehouse (Fédération Mooriben) found that women amortization, financial and other costs. outnumbered men as depositors—2,822 women •• The average return on capital employed (62 percent) compared to 1,764 men (38 percent). (i.e., on assets that are not loan financed) is There was a major hiatus in 2002–2003, resulting 60 percent. from the poor performance of mutual MFIs that •• In 2 out of every 5 years, returns are likely to FAO initially sought to promote inventory credit. be negligible. Unlike some other francophone countries, Niger’s •• In 1 out of every 5 years, the sales price will be mutual MFIs were very weak, with a near absence 90 percent or less of the costs incurred (including of effective cooperative networks to provide amortization, financial and other items). financial services within reach of rural producers. Producers will need to indicate whether they can After 2003, volumes continued their upward accept such risk scenarios and not default on trend thanks to the emergence of three direct their credits in any of the years. credit MFIs. These were credible private entities enjoying refinancing facilities with domestic The introduction of inventory credit needs to banks and the support of international investors. be accompanied by regular quantitative and However, they still exhibited some limitations: qualitative monitoring to determine the volume they offered little in the way of savings facilities, and type of products stored in each locality, were urban-based and therefore did not have day- the value of funds lent, the repayment record, to-day contact with producers and did not enjoy reasons for adoption and non-adoption of the the direct regulatory oversight of the Central credit system by men and women, and other Bank of the West African States. features. Occasionally, there should be a more in-depth review of social impact in terms of When successful, inventory credit provides real equity and gender. While social control is largely benefits to participating producers and nearly

102 A Guide to Strengthening Business Development Services in Rural Areas

100 percent reimbursement of loans, making producers, but the Niger case shows this is not the activity sustainable. Technically, it is simple always achievable in the short or medium term.9 and allows producers to better manage their physical and financial resources, which facilitates Support by government and the adoption of higher-yielding production nongovernmental organizations technologies. In southern parts of Niger, it has In view of wider socioeconomic benefits, NGOs proved a more viable means of promoting local and publicly funded projects may provide food security than cereal banks, which have been valuable complementary support in the promoted with scant success over the past 35 form of promotion, training (including basic years. Moreover, the introduction of inventory financial literacy), organizational development, credit appears to be a viable way to encourage management and accounts, warehouse cooperation among producers, which may bring construction, monitoring and evaluation. In other positive benefits, such as helping them doing this, they should adopt a social marketing access agricultural extension or other financial approach, working closely with the MFIs and services through the producer organization. other participants. The initiative proved the viability of the inventory A long time horizon credit product but is far from achieving its true potential. The volume stored represents little Experience in Niger and Madagascar suggests that more than 1/1,000 of Niger’s annual production it will require up to 10 years to fully prove the of grains and pulses, and it is small in terms system, and as much 15 to 20 years to make a of what individual producers, particularly more substantial impact at the national level. If strong prosperous smallholders, already hold back for and committed MFI networks are already in place, local consumption and sale in the lean season. it may be possible to speed up the process. One of the main constraining factors has been producers’ inability to get their stock in to Individual versus collective marketing store according to the schedule agreed upon Do not assume that producers will want to with MFIs. Certain rural communities have market their crops cooperatively, particularly in achieved exceptionally high levels of adoption the early stages. As noted above, producers in due to good practices that could have a major Niger often prefer their commodities to be stored impact if generalized across the country. Among in individually marked sacks and to individually the most important of these good practices are dispose of the commodity, even though they make advanced planning to get their crop in store and use of a community warehouse. a conservative advance rate, which minimizes the risk of producers having difficulty repaying Management of price risks their loans. In view of this potential, a donor- Three measures are particularly recommended to funded five-year promotional campaign has been improve the management of price risks: proposed to multiply the volume of inventory lending sixfold, and the value of stock stored to •• Producers should be encouraged to see around US$10 million. inventory credit as a means of inter-seasonal savings, such that they gain simply by having crop available in the lean season, even if they Best practices and insights do not achieve a speculative gain. Advance rates should be set conservatively, for example Financial institution performance as a given percentage of the lower of the The performance of the financing institution (MFI or other) is of critical importance. Before promoting inventory credit, professional and 9. Whereas savings and loan cooperatives have not solvent MFIs must drive product introduction performed well in rural areas of Niger, there are some as a matter of self-interest and provide for effective urban-based organizations with a strong savings functions. These might be prepared to extend long-term sustainability beyond the project their services to certain rural areas, particularly if they period. It is preferable to have MFIs that offer can build up a strong inventory credit portfolio that savings facilities and are physically close to the enables them to achieve a high level of reimbursement. These cooperatives are liquid and can access members’ savings at a maximum of 3 to 4 percent annually, which is very low compared to approximately 1 percent per month that the “direct credit microfinance institutions” must pay on funds they borrow from the banks.

103 A Guide to Strengthening Business Development Services in Rural Areas

current market price and a historical average While such inventory credit can mitigate price at the same time of year. instability within single marketing seasons, it •• Some sort of market intelligence should be cannot finance stocks carried over from one arranged to minimize “crass errors” (e.g., season to the next, nor can it mitigate the large producers taking large advances against a inter-annual swings that often occur in African product when regional and international data grain markets. To address this problem, one suggest that a price fall is imminent). This was needs other types of market institutions open to the case of groundnuts in some parts of Niger different kinds of players, such as commercial at the end of 2008. warehouse receipts systems. •• Policy dialogue with the government to minimize public interventions that increase Despite the limitations of rural inventory credit price risks faced by producers when storing.10 systems such as those in Niger and Madagascar, it is important to recognize their advantages of Caution in subsidizing construction of simplicity and low cost. Notably, there is less village stores concern about security than in larger-scale commercial warehousing operations. Security Any element of subsidy should be matched by is ensured by a combination of local social an equity contribution on the part of producers, pressures and independent monitoring by the while transfer of warehouse ownership should be MFI, and the stock is widely distributed in small conditional upon performance. Failure to do this lots throughout rural areas. So far, neither the largely explains why there are many thousands Niger nor Madagascan system has required of unutilized village stores in Africa. At the same any form of insurance, independent collateral time, producer organizations should build up managers11 or regulatory regimes, such as share capital and reserves in names of individual those found necessary to ensure the viability of members, so they feel a greater stake in the commercial warehouse receipts systems. The very business and can undertake further investments. simplicity of the system and its governance has While major benefits can flow from a rural provided considerable cost savings. inventory credit system of this kind, promoters should be mindful of the limitations. Producers are not the most adept players in foreseeing price Further information movements. To minimize speculative risks, MFIs Coulter, J.P. & Mahamadou, S. (2009). Revue du will normally require all loans to be repaid by Warrantage Paysan au Niger. Report prepared for the French Development Agency. http://www.fao. a fixed date far in advance of the next harvest, org/3/a-as606f.pdf. even when that harvest is expected to be poor.

10. An example of this in Niger is the former President’s 11. Independent collateral managers are normally inspec- Special Program for Cowpeas. Intervention prices were tion companies that manage stores and ensure the set far in excess of market prices, while restrictions security of the bank’s collateral. They operate in large- were placed on private exports, both of which discour- scale storage locations, and their monthly charges are aged private storage activity. normally US$1,500 or more plus insurance.

104 A Guide to Strengthening Business Development Services in Rural Areas

Annex 1. New Business Model Components

The Sustainable Food Lab, through its New or buyers receive the quantity and quality of Business Models for Sustainable Trading supply needed and that smallholders receive the Relationships project, and Oxfam identified these support and inputs they need to grow quality principles that underpin sustainable trading produce on a consistent basis. relationships and ensure value creation for both corporations and smallholder farmers: •• Chain governance of the supply chain is important in ensuring better quality and •• Chain-wide collaboration with shared consistency of production, and more stable goals and identified champions is at the benefits for producers. The agreed terms heart of the new business model principles. of trade, quality standards, and pricing Collaboration between chain actors facilitates structure (such as premiums for high quality the identification and resolution of problems, in and penalties for poor quality) must be clear terms of commercial, social and environmental throughout the chain from the outset. Clear performance. This approach stretches the on-farm management standards and incentives traditional firm-based view of a business model are important to promoting sustainable to an approach that encompasses chain-wide social and environmental practices on the processes involving multiple actors. farm. When farmers are hindered by a lack of •• Market linkages connect the various players in business expertise, organization and market a supply chain. These links can often be weak information, they are highly susceptible to when it involves smallholder farmers, especially exploitative contracts or trade. Contracting long chains in modern markets, which are led with organized groups of farmers is one way by distant corporate buyers. In the past, large to bring about more transparent governance, corporate buyers were more focused on business as groups of smallholders are better able to linkages with produce aggregators rather than negotiate prices and the terms under which farmers. Inclusive business models provide an both parties should operate. Finally, dispute opportunity to re-align the linkages throughout resolution mechanisms—either formal or a chain. Experience has shown that market informal—are hallmarks of well-functioning linkages for smallholders are improved when governance structures. As understanding and there is a strong intermediary buyer within knowledge improves, supply chains tend to work the chain. The intermediary firm can play better. Strategies to ensure that risks (such as an important role in providing farmers with bad weather, transport losses and last-minute services that help them to plan their production, changes in customer demand) are shared more aggregate produce and meet the food standards equitably throughout the chain include better of modern markets. Much can be done by communication about supply and demand and working with intermediary firms and their market financial risk management schemes. agents to support ways that improve benefits for •• Equitable access to services is critical for smallholders within modern markets. smallholders to enter and continue to evolve Strengthening market linkages may involve with changing markets. Smallholders need upgrading existing linkages or working with a access to technical equipment, inputs (e.g., new generation of specialized intermediaries. high-germinating seed) and appropriate Examples include raising the business skills financing to participate in modern markets. of cooperatives, improving relations between Financing is a particular problem in enabling farmers and first-level aggregations firms, smallholders to participate in modern markets, supporting trade associations or establishing and microfinance has not filled this gap. companies that provide multiple services to Nongovernmental organizations (NGOs) smallholders. It is our vision that specialized often identify gaps in services and can intermediaries can provide a critical link fill them. However, this type of support between informal smallholders and formal is often temporary, as project resources corporate buyers, by ensuring that exporters are finite. Exit strategies to hand over

105 A Guide to Strengthening Business Development Services in Rural Areas

responsibility to local service providers post-harvest, should be considered as integral are rarely successful, and in many cases parts of any supply chain upgrading process. smallholder participation declines with no •• Measurement of outcomes is key to alternative service provision in place. maintaining long-term sustainable trading relationships. Where commercial and social •• Inclusive innovation harnesses the full outcomes are measured and data is gathered on potential of the supply chain to innovate a regular basis, a value chain is better placed products and reduce costs. Currently, to negotiate its way through challenges and to innovation tends to be the preserve of larger adapt appropriately. This is achieved through players, who are nearer to the market and reporting, regular chain-wide discussions and better resources, and smallholders are often jointly solving problems and blockages. unable to take advantage of innovations due to poor chain-wide communication. Innovation Source: Vorley, B., Ferris, S., Seville, D., & Lundy, M. can occur at all nodes in the supply chain (2009). Linking worlds: New business models for sustainable trading relations between smallholders for all sorts of reasons, and innovation from and formalized markets. Sustainable Food Lab. smallholders, particularly in production and http://sustainablefood.org/images/stories/pdf/ nbm%20linking%20worlds%20.pdf

106 Annex 2. About the Partners

Since 1981, Land O’Lakes International Catholic Relief Services was founded in 1943 by Development has applied an integrated approach the Catholic Bishops of the United States. Our to international economic development that mission is to assist the poor and disadvantaged capitalizes on our company’s 93 years as a leading and promote development of all people and to farm-to-market agribusiness. We use our practical foster charity and justice throughout the world. experience and in-depth knowledge to facilitate CRS operates on five continents and in more than market-driven business solutions that generate 90 countries. CRS aids the poor by providing both economic growth, improve health and nutrition direct assistance and working with communities and alleviate poverty. We believe in the value of in their development. people and ensuring our work is rooted in honesty, integrity and respect. Our vision is to be a global leader in transforming lives by engaging in agriculture and enterprise partnerships that replace poverty with prosperity, and dependency The International Center for Tropical Agriculture with self-reliance. is a nonprofit organization that conducts socially and environmentally progressive research aimed at reducing hunger and poverty and preserving natural resources in developing countries. It is one of the 15 centers funded by the 64 countries, private foundations and international organizations that make up the Consultative AT Uganda Ltd. is involved in provision of Group on Agricultural Research. agricultural extension services, agro-processing promotion, agro-input distribution facilitation, collective marketing linkages and business development services to some of the poorest and most remote districts of Uganda, which desperately lack services. Our mission is to ACDI/VOCA is a private, nonprofit organization empower rural households in northern and that promotes broad-based economic growth, eastern Uganda by facilitating access to support higher living standards and vibrant communities services needed for productive, sustainable in low-income countries and emerging agriculture and related profitable enterprises. democracies. ACDI/VOCA has always had a food security focus. ACDI is an industry leader in value chain-oriented poverty alleviation and enterprise development. We have hard-won experience in conflict-affected and fragile states and proficiency The Sustainable Food Lab is a global network of at managing the transition from relief to organizations working together to facilitate development. Our innovative approaches to food market-based solutions to key issues necessary aid and financial services contribute to economic for a healthy and sustainable food system to feed development and meet the test of the market. a growing world. From peer-to-peer leadership networks, to global learning events, to supply chain innovation projects, to measurement tools, the Sustainable Food Lab brings organizations together to help them accelerate progress toward a more sustainable food system.

107 A Guide to Strengthening Business Development Services in Rural Areas

The Natural Resources Group, theNRgroup, is an Fineline Rural Reach Ltd. is a leading economic association of independent development development consulting firm with specialization professionals who collaborate to undertake and in institutional appraisal, market research, contribute expertise to natural resources projects organizational development, capacity building and activities. The group provides high-quality and institutional strengthening, product solutions to today’s natural resources development, microfinance, and business management problems in a cost-effective and development services. Established in Kenya in timely manner. 1997, Fineline is a leading consulting firm in Chris Wheatley is an independent consultant Africa that is dedicated to the development and with expertise in the design, implementation growth of the microfinance industry and the and evaluation of processes linking farmers smallholder and microenterprise sectors in the to markets, value chain strengthening, region. The company is increasingly providing agro-enterprise and business development market-driven business development services services across a wide range of agricultural with a focus on market linkages, training and and horticultural crops. He has a specific technical support to NGOs, savings and credit interest in the development of market-based cooperatives and the private sector microfinance mechanisms for natural resource sustainability and business development services. and biodiversity conservation, and he has Agribusiness Management Associates hands-on experience with program cycle (design, Uganda Ltd. was formed in 2003 by Ugandan management, M&E), strategic planning and professionals who had served in the highly resource mobilization. He also provides capacity successful Investment in Developing Export building and facilitation services. Agriculture project funded by the U.S. Agency for International Development and the International Institute of Tropical Agriculture. It has continued to provide short-term consultancies to various projects in Kenya, funded by the U.S. Agency for International Development, mainly in the field of business development for smallholders and farmer organization institutional setup and development. In Uganda, Agribusiness Management Associates has worked with a large number of small-scale and large-scale farmers.

108 A Guide to Strengthening Business Development Services in Rural Areas

Annex 3. About the Donors

The Canadian International Development Agency’s mandate is to support sustainable The International Development Research development in developing countries to reduce Centre is a public corporation created by the poverty and contribute to a more secure, Parliament of Canada in 1970 to help developing equitable and prosperous world. The agency’s countries use science and technology to find work is concentrated in the poorest countries practical, long-term solutions to the social, in Africa, Asia and Latin America. The agency’s economic, and environmental problems they program is based on the Millennium Development face. Support is directed toward developing an Goals, to which it contributes through four key indigenous research capacity to sustain policies areas: social development; economic well-being; and technologies that developing countries need protection, conservation and management of the to build healthier, more equitable and more environment; and governance. prosperous societies.

The U.K. Department for International Development is the part of the government that manages Britain’s aid to poor countries and The New Zealand Aid Programme (NZAID) is the works to reduce extreme poverty. Its work aims government’s international aid and development to bring people out of poverty through programs agency. The agency is responsible for delivering that settle conflicts, increase trade, and improve New Zealand’s Official Development Assistance health and education. and for advising ministers on development assistance policy and operations. NZAID places a high priority on building strong partnerships and concentrates its development assistance on activities that contribute to poverty elimination by creating safe, just and inclusive societies, fulfilling basic needs, and achieving environmental sustainability and sustainable livelihoods. NZAID supports projects in the Pacific The work of the German technical agency, region, Asia, Africa and Latin America. Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) provides international cooperation for sustainable development. GTZ operates on a worldwide basis, providing viable, forward-looking solutions for political, economic, ecological and social development in a globalized world. GTZ supports complex reforms and change processes. All our activities are geared The U.S. Agency for International Development is to improving people’s living conditions and an independent federal government agency that prospects on a sustainable basis. aims to further America’s foreign policy interests in expanding democracy and free markets while improving the lives of the citizens of the developing world. The agency supports long-term

109 A Guide to Strengthening Business Development Services in Rural Areas and equitable economic growth and advances U.S. foreign policy objectives by supporting economic growth, agriculture and trade; global health; and democracy, conflict prevention and humanitarian assistance. The Swiss Agency for Development and Cooperation is organized and funded by the Swiss government and operates by financing programs both directly and in partnership with other agencies to countries around the world.

The information and conclusions reported in this document do not necessarily reflect the position of any donor agency.

110 A Guide to Strengthening Business Development Services in Rural Areas

References

Action for Enterprise. (2014). Value chain program de- Christen, R. & Anderson J. (2013). Segmentation sign: Promoting market-based solutions for MSME and of Smallholder Households: Meeting the range of industry competitiveness. Paper to USAID/EGAD/ financial needs in agricultural families. Consulta- MD. Arlington, Virginia, USA: Action for Enterprise. tive Group to Assist the Poor (CGAP) Focus Note, 85. http://www.cgap.org/sites/default/files/ Benin, S., Nkonya, E., Okecho, G., Pender. J., Focus-Note-Segmentation-of-Smallholder-House- Mugarura, S., & Kato, E. (2005). Quantifying the holds-April-2013.pdf impact of the National Agricultural Advisory Ser- vices in the Uganda rural livelihoods. Household CIAT rural agroenterprise development: Good prac- Survey. Washington, DC, USA: International Food tice guides. International Center for Tropical Policy Research Institute. Agriculture (CIAT) website. http://webapp.ciat. cgiar.org/agroempresas/ingles/good_practice_ Benin, S., Nkonya, E., Okecho, G., Randriamamonjy, guide_series.htm J. Kato, E., Lubadde, G., …Byekwaso, F. (2011). Impact of Uganda’s National Agricultural Advisory Coulter, J. Warehouse receipting, loss reduction Services program. Washington, DC, USA: Inter- and the development of value chains for grains. national Food Policy Research Institute. http:// (2010). In: FAO/World Bank workshop on reduc- cdm15738.contentdm.oclc.org/utils/getfile/collec- ing post-harvest losses in grain supply chains in tion/p15738coll2/id/126798/filename/126994.pdf Africa: Lessons learned and practical guidelines (pp. 16–17). Rome, Italy: Food and Agriculture Bramel, P., Remington, T., & McNeil, M. (Eds). Organization of the United Nations. http://www. (2004). CRS seed vouchers & fairs: Using markets fao.org/3/a-au092e.pdf in disaster response. Nairobi, Kenya: Catholic Relief Services. Coulter, J.P. & Mahamadou, S. (2009). Revue du Warrantage Paysan au Niger. Report prepared for Bright, D., Seville, D., & Borkenhagen. (2010). Thing the French Development Agency. http://www.fao. big. Go small. Adapting business models to incorpo- org/3/a-as606f.pdf. rate smallholders into supply chains. Oxfam Brief- ing for Business, 6. https://www.oxfam.org/sites/ Cruz, J. A. (2009). Fostering agribusiness devel- www.oxfam.org/files/b4b-think-big-go-small.pdf opment centers in El Salvador. In: Ferris, S., Mundy, P., & Best, R. Getting to market: From Catholic Relief Services. (2007). The clustering ap- agriculture to agroenterprise (pp. 152–162). proach to agroenterprise development for small Baltimore, Maryland, USA: Catholic Relief farmers: The CRS-Philippines experience. A guide- Services. http://static1.1.sqspcdn.com/stat- book for facilitators. Davao City, Philippines: Cath- ic/f/752898/9984008/1296500345453/get- olic Relief Services. http://www.pinoyme.com/ ting-to-market.pdf?token=SR0jpkHDrmmupQTR- b2b/wp-content/uploads/2008/07/part_1.pdf. DU0CcimjE6c%3D Catholic Relief Services. (2014). Moving together to Dorward, A., & Kydd, J. (2005). Making market the market: The clustering approach to agroenter- systems work better for the poor (M4P): Promoting prise development for small farmers. Baltimore, effective, efficient and accessible coordination and Maryland, USA: Catholic Relief Services. http:// exchange. Presented at Making Markets Work for static1.1.sqspcdn.com/static/f/752898/2535006 the Poor, February 15–16, Manila, Philippines. 4/1408713852200moving-together-to-the-market- the-clustering-approach-to-agroenterprise-devel- Ferris, S. & Robbins, P. (2004). Developing market- opment.pdf ing information services in Eastern Africa: The FOODNET experience. ASARECA Monograph 9. Charles, E. (2009). Savings groups and market- Ibadan, Nigeria: International Institute of Tropical ing associations in the Lake Zone, Tanzania. Agriculture. http://www.iita.org/c/document_li- In: Ferris, S., Mundy, P. and Best, R. Getting to brary/get_file?uuid=a44e210d-2ec5-4ebf-94fc- market. From agriculture to agroenterprise (pp. 63af52706595&groupId=25357 184–196). Baltimore, Maryland, USA: Catholic Relief Services. http://static1.1.sqspcdn.com/ static/f/752898/9984008/1296500345453/getting-to-market.pdf

111 A Guide to Strengthening Business Development Services in Rural Areas

Ferris, S. (2012). Information and communication Mungai, N. (2009). Factors hindering business devel- technologies for development. International In- opment services provision in small scale horticulture stitute for Environment and Development and enterprises in Mt. Kenya Region. Paper presented the Sustainable Food Lab. http://pubs.iied.org/ at the Regional Workshop on Delivering Business pdfs/16510IIED.pdf Development Services to Rural Areas, Nairobi, Kenya, September 21-25, 2009. Ferris, S., Paschall, M., Seville, D., Dadi, L., & Kums- sa, G. (2012). Dried beans in Ethiopia: Increasing Porteous, D. (2005). The access frontier as an ap- food security through trade. International Institute proach and tool in making markets work for the for Environment and the Sustainable Food Lab. poor. U.K. Department for International Develop- http://pubs.iied.org/pdfs/16035IIED.pdf ment. http://bankablefrontier.com/wp-content/ uploads/documents/access-frontier-as-tool.pdf Ferris, S.; Robbins, P.; Best, R.; Seville, D.; Buxton, A.; Shriver, J., & Wei E. (2014). Linking Small- Remington, T. (2008). CRS Burkina Seed Fair Ex- holder Farmers to Markets and the Implications for perience. Baltimore, Maryland, USA: Catholic Extension and Advisory Services. MEAS Discussion Relief Services. Paper 4. Sargis, B. (2009). Role of agricultural commodity Food and Agriculture Organization of the United exchanges in price discovery and risk management Nations (FAO) & Programme de développement des for grains; Implications for East Africa. Washington, services financiers ruraux (PDSFR). (2006). Guide DC, USA: World Bank. de Bonnes Pratiques du Warrantage au Niger. FAO Sebstad, J., & Snodgrass, D. (2008). Impacts of the and PDSFR. KBDS and KHDP projects in the tree fruit value Haight, A. (2005). Reaching low-income women with chain of Kenya. microREPORT 129. U.S. Agency enterprise development services: Challenges and for International Development. http://pdf.usaid. opportunities. SEEP Network. http://www.seepnet- gov/pdf_docs/PDACN958.pdf work.org/reaching-low-income-women-with-en- Shepherd A. W. (1997). Market information services: terprise-development-services--challenges-and-op- Theory and practice. Rome, Italy: Food and Agri- portunities-resources-340.php. culture Organization of the United Nations. Jayne, T. S., Mason, N. M., Myers, R. J., Ferris, J. Sperling, L., Cooper, H. D., & Remington, T. (2008). N., Mather, D. Beaver, M., …Boughton, D. (2010). Moving towards more effective seed aid. Journal Patterns and trends in food staples markets in of Development Studies, 44(4), 586–612. DOI: eastern and southern Africa. MSU International 10.1080/00220380801980954 Development Working Paper No. 104. East Lan- sing: Michigan State University. Ssango, F. and Kavuma, J. (2009). Market-led business development services delivery to smallholder Kleih, U., Odwongo, W., & Ndyashangaki, C. (1999). farmers in Central Uganda. Paper presented at the Community access to marketing opportunities: Op- Regional Workshop on Delivering Business Devel- tions for remote areas. Uganda case study. Nation- opment Services to Rural Areas, Nairobi, Kenya, al Resources Institute. September 21-25, 2009. Lundy, M. (2007). Assessing smallholder participation Svensson, J. & Yanagizawa, D. (2009). Getting prices in the French bean supply chain in Guatemala: right: The impact of the market information service Summary document. Sustainable Food Lab Annual in Uganda. Journal of the European Economic Asso- Meeting, Antigua, Guatemala. International Center ciation, 7(2-3), 435–445. of Tropical Agriculture. https://cgspace.cgiar.org/ handle/10568/56143 Tripp, R. (2002). Seed provision and agricultural development: The institutions of rural change. London: Miehlbradt, A. O. & McVay M. (2003). Seminar Reader. Overseas Development Institute. Business development services: Testing the guiding principles. Turin, Italy: International Labour U.K. Department for International Development Organization. http://www.ilo.org/empent/Publi- (2000). Making markets work better for the poor: A cations/WCMS_143127/lang--en/index.htm framework paper. http://www.value-chains.org/ dyn/bds/docs/detail/684/6 Miehlbradt, A. O., McVay, M., & Tanburn, J. (Ed.) (2005). The 2005 Reader: From BDS to Making Uy, J. 2009. Collective marketing of calamansi in the Markets Work for the Poor. International Labour Or- Philippines. In: Ferris, S., Mundy, P. and Best, ganization. http://www.ilo.org/wcmsp5/groups/ R. (Eds). Getting to market. From agriculture to public/---ed_emp/---emp_ent/---ifp_seed/docu- agroenterprise. Baltimore, Maryland, USA: Catho- ments/publication/wcms_143184.pdf lic Relief Services.

112 A Guide to Strengthening Business Development Services in Rural Areas

Vorley, B., Ferris, S., Seville, D., & Lundy, M. (2009). Wood, M. Agent approach to extension services. Linking worlds: New business models for sustain- PROFIT Project Zambia. https://www.ncba.coop/ able trading relations between smallholders and zambia-profit formalized markets. Sustainable Food Lab. http:// The World Bank. (2007). World Development Report sustainablefood.org/images/stories/pdf/nbm%20 2008: Agriculture for Development. Washington, linking%20worlds%20.pdf DC, USA: The World Bank. http://siteresourc- Walker, S. (2010). ICT to enhance warehouse receipts es.worldbank.org/INTWDR2008/Resources/ systems and commodity exchanges in Africa. WDR_00_book.pdf USAID Briefing Paper.https://www.microlinks. org/sites/microlinks/files/resource/files/FACET- WRSCEXv2.pdf

113 228 W. Lexington Street Baltimore, MD 21201-3413 USA Tel: 410.625.2220 • www.crs.org ISBN 1-61492-157-1