After decades of under-investment and at a time of high population growth and changing natural conditions due to climate change, the agricultural sector in developing countries will require additional investments of approximately USD 83 billion per year[1] to achieve food security by 2050. Since the food value chain is almost entirely in the hands of private sector companies, development agencies have identified concepts to engage the private agricultural sector in developing countries while adhering to specific socio-economic conditions, such as the prevalent smallholder agriculture. These innovative concepts seek to use governance and legal tools, such as contract farming, public-private partnership (PPP) models and new investment models, in smallholder agriculture (FAO 2004).[2][3]
Background
The challenge to produce 70% more food for an additional 2.3 billion people by the year 2050 in the context of climate change requires multiple initatives to increase agricultural productivity and innovation. Global agriculture has increasingly been transformed by large agribusinesses through vertical integration that provides essential farming technology and trade facilities. Vertical integration is defined as merging together of two businesses that are at different stages of production.[4] Since the majority of producers in developing countries are smallholders, farmers will need to gain access to regional and international markets for production inputs and to provide the necessary additional produce to food value chains. The challenge here is, however, to overcome the imbalances of market power, information asymmetries and financial and technological disparities between input providers, buyers, and farmers (OECD 2010).
Therefore, the required market transition requires governance models to be designed and institutionally built in a technically feasible and effective way for the objective of poverty reduction and food security to be reached by 2050 (ESFIM 2012). Innovative agricultural partnerships also provide an alternative in developing countries to foreign direct investment or land grabbing, i.e. large swaths of land leased out to foreign investors to produce agricultural produce on bigger production units. For this purpose, several tools and concepts have been designed in development cooperation to transform and adapt farmers to arising challenges by innovative governance models that promote a partnership between farmers, governments, input providers and buyers.
Public-private partnerships
Another model for innovative partnerships in the agricultural sector is the concept of public-private partnerships (PPP). Although there is no widely accepted definition of the concept, PPP refers to arrangements between the public and private sectors whereby part of the services or works that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/or public services.[5] Although generally deployed in other economic sectors than agriculture, the concept has also found application in the primary sector in developing countries where public capital is scarce while high investment in agriculture is required to achieve food security.[6] The PPP concept seeks to pool private capital and the expertise of the private sector while simultaneously prompting governments to provide sound regulatory frameworks.[7] In agriculture, PPPs are used to deploy private capital and the expertise of the input and food industry to improve on-farm management, infrastructure and adaptation to climate change while at the same time fostering capacity development and introducing an enabling environment to improve governance schemes through public funding.
Contract farming
Contract farming, an effective and increasingly popular method, can be defined as an agricultural production system carried out according to a formal or informal agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products. Typically, the farmer commits to providing agreed quantities of a specific agricultural product which should meet the quality standards of the buyer and be supplied at the time that the buyer determines. In turn, the buyer agrees to purchase the product at agreed pricing conditions and, in some cases, to support production, for example through easing the access to and the supply of farm inputs, land preparation and the provision of technical advice.[1] Contract farming is also referred to as ‘out-grower schemes’, whereby farmers are linked with a large farm or processing plant which supports production planning, access to inputs, extension advice, transport and marketing. Based on the business relationships within an out-grower scheme, access to finance is often crucial for small-scale farmers, who are forced to sell their produce for a lower price to traders and processors to obtain financial liquidity.
However, contract farming needs a specific set of guidelines and legal frameworks that enable both buyer and producer to establish and maintain a good relationship to discourage a deterioration of the farming operation through opportunistic behavior or other unfair practices. Such a win-win situation can only be achieved if the contract promotes agricultural production and guarantees a secure market for the commodity, thereby allowing farmers to earn increased revenue and buyers to obtain a return on their investments.[1] Contracts must be clear and readable to specify the parties’ responsibilities; transparent; fully disclosed; provide due attention and regularly reviewed; independently advised by legal experts; and ensure the agreed price is satisfactory to both sides whilst strictly honoured to allow continuous trust between both parties. While buyers must strictly adhere to the concluded agreement and a fair and transparent procedure of assessing the quality of the products, the farmers must agree to produce the commodities as stated in the contract, e.g. using the agreed fertilizers, using clean water, maintaining farm equipment and hygienic standards and post-harvest handling of the produce to prevent losses. Moreover, fairness of delivering input supply and proper use must be transparently provided by the buyer and farmers. There should also be a possibility of renegotiation of the contracts in case of crop pests and animal diseases to ensure risk-sharing between both parties. In case of disputes over the agreed contractual agreement, the farmers and buyers should agree upon a neutral third party to mitigate between both sides.[1] Development cooperation can provide the necessary advice on capacity development of smallholders, independent legal and technical advice for smallholders and observation of fair procedures.
Examples
AgWater Solutions project
The International Water Management Institute (IWMI) has partnered with several international agricultural research institutes and international organisations to develop a programme aimed to identify investment options and opportunities in agricultural water management with the greatest potential to improve incomes and food security for poor farmers. The AgWater Solutions project emphasizes the crucial role of smallholder farmers in providing food security in developing countries. It seeks to attract and govern investment from both the public and the private sector in small-scale irrigation technologies to make them available to farmers who at present cannot afford to purchase the required technology. The hypothesis of the programme is that smaller units of production can induce higher yields and social benefits. For example, investments in dry-season irrigation for rice could improve yields between 70% and 300% across sub-Saharan. Investments in motorized pumps, specifically, could benefit 185 million people and generate net revenues up to USD 22 billion per year. Moreover, investment in rainwater harvesting systems constructed on farm ponds to irrigate pulses and wheat could lead to improved incomes for farmers by more than 70%. The programme draws its recommendations from case studies in Burkina Faso, Ethiopia, Zambia, India, Tanzania and Ghana, where scientists and development experts have field tested the approach.[8][9][10]
COMPACI programme
In 2005, the German textile entrepreneur Michael Otto launched the Cotton made in Africa (CmiA) initiative to unite textile companies in Germany to use sustainably produced cotton from Sub-Sahara African countries. Leading textile companies in Germany have been engaged as marketing partners to ensure social, economic and environmental standards. Approximately 10% of global cotton production is based in Sub-Sahara Africa, making cotton its third largest export commodity. It is mostly grown under rain-fed conditions; hence African cotton is more sustainably produced than in other parts of the world. However, during 2005-2009, global cotton prices and overvalued local currencies led to a reduction of cotton production by 50%. The target of the CmiA initiative was to gradually tackle this imbalance. In 2008 the CmiA project received further funding from the Bill and Melinda Gates Foundation, the German Ministry for Development and Economic Cooperation (BMZ) and private sector companies to increase the leverage of the CmiA initiative through the PPP model. As a consequence, the Competitive African Cotton Initiative (COMPACI) was established to promote cotton production by smallholder farmers in the Sahel Zone. In order to participate in the CmiA initiative, smallholder farmers must fulfill these sustainability criteria, as well as also honor exclusion criteria (such as the worst forms of child labor or cultivation of cotton on clearly marked nature reserves). The model has enabled smallholder farmers to sell their cotton on the world market without levying a premium. A label of origin is attached to the cotton produced: the Aid by Trade Foundation (AbTF), based in Hamburg, has been established to regulate such labeling. In order for a company to use the origin label “Made in Africa”, the company has to pay an 8% surcharge to the cotton price, which is then used for marketing CmiA and for funding community projects (basic education and adult literacy projects) in the cotton producing countries. For the 2013 plus period, it is expected farmers will increase their incomes by 10-15%, in addition to better education facilities becoming available in producing countries. As of 2010, around 180,000 farmers have been associated with the COMPACI scheme, of which 120,000 received agricultural training to enable them to produce sustainably in accordance with CmiA principles. 8,000 farmers benefitted from micro-credit schemes introduced by COMPACI (Cotton International 2011).[11]
Water Futures Partnership
The Water Futures Partnership was initiated by the London-based multinational brewery SABMiller, GIZ and WWF to pool resources in agricultural water management. SABMiller’s supply chains span across the globe, making the company increasingly dependent at both operational and strategic levels on water availability and quality. The company has set a target to decrease its own water consumption by 25% per hectoliter of beer brewed by 2015, and has adopted a water strategy with a consistent approach across all its operations to ensure that water-related risks are considered throughout the value chain. SABMiller has invested resources to understand how water risk will affect its business strategy over the coming years. As a result, it has decided to partner with local farmers in Honduras, Colombia, Peru, Ukraine, South Africa, USA, India and Tanzania to 1) measure its water footprint; 2) assess water risks at the watershed level, engage local stakeholders, prioritize risks and build the business case for action; and 3) expand partnerships and collectives in order to mitigate risks. The SABMiller approach has contributed to good water use practices, such as supporting community access to water, improving water services provided by ecosystems, and supporting of good water governance of the public sector in their role as water managers.[12] See also water stewardships.
PPP for climate change adaptation in Kenya
In Kenya, a consortium of Sangana Commodities Ltd., the largest coffee exporter in the country, has established a partnership with GIZ to enable farmers to acquire a set of good agricultural practices, enhance framework conditions and obtain information on climate change. In order to have a greater impact, the development partnership cooperates with other strategically important partners such as the 4C Association, the World Bank, Tchibo GmbH, Rainforest Alliance, Efico, the Baragwi Farmers’ Cooperative Society (BFCS) and Sustainable Management Services Ltd, which form the association. These partners provide small farmers with access to climate data. Coffee farmers in Kenya often burn fossil fuels and clear their land, leading to higher greenhouse emissions that contribute to climate change. The goal of the project is to store these emissions within production systems, in particular green house emissions of smallholders, in order to mitigate climate change in Kenya.
The 4C Association already has three components in its Code of Conduct: social, environmental, and economic. The PPP will develop an additional voluntary component, the climate component. Any coffee producer group opting for the 4C standard will have to gradually comply with the existing three components, whereas they can opt to comply with the fourth one. This climate component consists of agricultural practices for adaptation and mitigation, trainings for producers and verifiers, verification instruments and a climate data base; all of which will be implemented together in a pilot group by Baragwi Farmers’ Cooperative Society Ltd. In this way, the knowledge and experience of the private sector companies is pooled with local farming in Kenya to help farmers to improve their agricultural management practices.[3]
Africa Cashew Alliance
Approximately 39-45% of global cashew production is located in Sub-Sahara Africa, due to the comparative locational advantage of producing countries such as Ghana, Mozambique or Benin and their proximity to major markets in Europe and North America. However, 90% of cashews leave the African continent unprocessed, exported to countries such as India where more efficient processing plants exist. Low yields, poor farm-level technical knowledge, weak research support, limited access to critical extension services and other inputs are some of the factors responsible for the lack of in-country cashew processing. The lack of financial services available to farmers prompts cashew producers to sell nuts “on the tree” to exporters. High transaction costs of sourcing for processing arise due to weak horizontal collaboration (for bulking, grading, and packing) of producers’ organisations and lack of timely access to market information. The poor investment climate and poor infrastructure (electricity, communication, water) for national and foreign enterprises in processing increase the producers’ risk and transaction costs. Furthermore, the industry is heavily regulated by an adverse, non-harmonised set of policies, resulting in an absence of quality standards and inefficient informal cross-border arbitrage. HIV/AIDS also poses severe problems to producers because of the growing number of skilled staff lost to the deadly virus, and furthers the brain drain of skills in recent years.[13][3]
The Africa Cashew Alliance (ACA) was established in 2005 by local and international cashew businesses to tackle the adverse conditions in cashew production, processing, marketing and sales throughout the value chain. Funded by USAID, international agribusinesses and the Bill and Melinda Gates Foundation, GIZ has become the implementing partner in the ACA initiative. GIZ has partnered in a PPP with three private sector companies in the cashew value chain to strengthen the capacity of workers in cashew production, processing, distribution, marketing and workers’ health. The private sector companies involved in this initiative are Global Trading & Agency BV (GTA), a broker and trading agent in various nuts and dried fruits, based in the Netherlands; Miranda Industrial Lda., a family owned cashew processing company in Mozambique; and Afokantan Benin Cashew SA, a cashew processing company in Benin. These three private sector stakeholders in the PPP provide training to staff members in the various companies along the value chain to improve the efficiency of cashew production in order to add value to the cashew nuts produced in Africa and to retain that value in the producing economies. A major PPP focus is the prevention and treatment of HIV/AIDS, tuberculosis and malaria: the staff is tested and further educated on how to limit the spread of the viral and bacterial infections through appropriate treatment and prevention mechanisms. Overall, PPP has reached approximately 500,000 people, i.e. workers and their family members. The partnership has also induced higher revenues for smallholders and producers, thus increasing revenues and taxation that remains in the producing economies.[14]
References
- ↑ 1.0 1.1 1.2 1.3 Food and Agriculture Organisation of the United Nations (2012). Guiding principles for responsible contract farming operations. FAO: Rome. Available online: http://www.fao.org/docrep/016/i2858e/i2858e.pdf [18.01.2013].
- ↑ Giordano, Meredith, de Fraiture, Charlotte, Weight, Elizabeth and van der Bliek, Julie (2012). Water for wealth and food security: Supporting farmer-driven investments in agricultural water management. AgWater Solutions Project: Accra. Available online: http://awm-solutions.iwmi.org/Data/Sites/3/Documents/PDF/publication-outputs/water_for_wealth_and_food_security.pdf [ 18.01.2013].
- ↑ 3.0 3.1 3.2 Gesellschaft für Internationale Zusammenarbeit (2010). Topic Sheet: Climate Change Adaptation and Mitigation in the Kenyan Coffee Sector. Eschborn: GIZ.
- ↑ The Economist (2009). Idea: Vertical Integration. Available online: http://www.economist.com/node/13396061 [ 18.01.2013].
- ↑ World Bank (2013). About Private Public Partnerships. Available online: http://ppp.worldbank.org/public-private-partnership/overview [18.01.2013].
- ↑ African Development Bank (2010). Handbook on Public-Private-Partnerships. ADB: Manila. Available online: http://www.apec.org.au/docs/ADB%20Public%20Private%20Partnership%20Handbook.pdf [18.01.2013].
- ↑ Gesellschaft für Internationale Zusammenarbeit (2013). DeveloPPP. Available online: http://www.developpp.de/en/What_is_PPP.html [18.01.2013].
- ↑ Williams, Timothy Olekan, Giordana, Meredith and Weight, Elizabeth (2012). Investment Opportunities in Smallholder Agricultural Water Management for Improved Food Security in Sub-Saharan Africa. Paper presented at the Food Security in the Drylands Conference on 14 November 2012 in Doha, Qatar. Available online: http://www.fsdl.qa/Portals/0/pdf/17_WILLIAMS.pdf [18.01.2013].
- ↑ AgWater Solutions: http://awm-solutions.iwmi.org/
- ↑ Giordano, Meredith, de Fraiture, Charlotte, Weight, Elizabeth and van der Bliek, Julie (2012). Water for wealth and food security: Supporting farmer-driven investments in agricultural water management. AgWater Solutions Project: Accra. Available online: http://awm-solutions.iwmi.org/Data/Sites/3/Documents/PDF/publication-outputs/water_for_wealth_and_food_security.pdf [ 18.01.2013].
- ↑ DEG Invest and Gesellschaft für Internationale Zusammenarbeit (2011). COMPACI Background. Köln and Eschborn: DEG/GIZ.
- ↑ Water Futures Partnerships: http://www.sabmiller.com/index.asp?pageid=2049
- ↑ Africa Cashew Alliance: http://www.africancashewalliance.com/
- ↑ Gesellschaft für Technische Zusammenarbeit (2010). Status Report: Improved Cashew Value Chain in Africa. Eschborn: GTZ.
Felgenhauer, K. and Wolter, D.(2010). Outgrower Schemes – Why Big Multinationals Link up with African Smallholders. OECD:Paris. Available online: https://www1.oecd.org/dev/41302136.pdf (accessed 18.01.2013).
Peltzer, Roger and Tiemann, Alexa (2011). Are the COMPACI and CmiA models financially sustainable. Cotton International 11/11.
Gil Ton (2012). Empowering Smallholder Farmers in Markets. Available online: http://www.esfim.org/wp-content/uploads/ESFIM-newletter-February-2012.pdf (accessed: 18.01.2013).
Williams, Timothy Olekan, Giordana, Meredith and Weight, Elizabeth (2012). Investment Opportunities in Smallholder Agricultural Water Management for Improved Food Security in Sub-Saharan Africa. Paper presented at the Food Security in the Drylands Conference on 14 November 2012 in Doha, Qatar. Available online: http://www.fsdl.qa/Portals/0/pdf/17_WILLIAMS.pdf [18.01.2013].
World Bank (2013). About Private Public Partnerships. Available online: http://ppp.worldbank.org/public-private-partnership/overview [18.01.2013].
Links
AgWater Solutions: http://awm-solutions.iwmi.org/
DeveloPPP: http://www.developpp.de/en/What_is_PPP.html?PHPSESSID=f8sv9oi6djlp1ol5eh421m9pudtaca6p
Water Futures Partnerships: http://www.sabmiller.com/index.asp?pageid=2049
Africa Cashew Alliance: http://www.africancashewalliance.com/
