Thank you Matt for such a summary. I also believe that contract farming is certainly not the only and single transaction mode to promote and it doesn’t guarantee equity, sustainability, shared risks and profits. Contract farming can be terrible for small farmers or can be an opportunity for some of them.
I think that some forms of “contract farming” should be negotiated with stakeholders far beyond producers and buyers: it should involve service providers (technical et financial) and some regulators. I don’t say that all should sign a “multi stakeholder contract”, no ! I am saying that any transaction mode is influence by other stakeholders active in a market system (I believe it is also Mike’s comment). WE should avoid isolating transactions from the whole “market system”.
In practice, I use the term “collective business strategy” to describe all the collaborative agreements (formal or not) between essential, support and regulatory actors involved in a single market systems. Such collective business strategy can secure bilateral transactions, coordinate support (technical and financial) services, identify systemic investments that will unlock systemic functions for the benefit of the whole system.
It is time to go away form single business models, business plans and transactions and to adopt and support collective business strategies, and a flow of transactions (vertically and horizontally) with a conducive roles of regulators (public or private).
Single businesses will be sustainable and inclusive if they voluntarily participate and contribute to the functions of market system in which they do their business, and transactions shouldn’t be isolated from other transactions upstream and downstream in the system : they all have to be inclusive, successful and fair.
Shall we introduce the concept of “permabusiness” ? 😊
Bernard CONILH de BEYSSAC Conseiller Régional Economies Inclusives & Durables - Afrique de l’Ouest Regional Inclusive & Sustainable Economies Advisor - Western Africa
[facebook] <https: helvetas?utm_source="e-mail&utm_medium=mail&utm_campaign=signatur" www.facebook.com=""> [twitter] <https: helvetas?utm_source="e-mail&utm_medium=mail&utm_campaign=signatur" twitter.com=""> [googleplus-2] <https: 0="" 117453014389131344440="" b="" plus.google.com="" posts?utm_source="e-mail&utm_medium=mail&utm_campaign=signatur" u=""> Please, consider the environment before printing this e-mail Be GREEN, keep it on the SCREEN
De : [Hidden email] <[Hidden email]> De la part de Matthias Herr Envoyé : lundi 11 novembre 2019 13:32 À : SDC e+i network Private Sector Development <[Hidden email]> Objet : [privatesectordevelopment] Flash of Inspiration no. 9: Impact@Scale in Agriculture
Dear All,
Thank you so much for these insights. A few key messages that I took out are:
* Fouzia: Contract farming as a interim or transitional arrangement that empowers farmers and enables them also to grow and move beyond an individual contracts; also the size and degree of market diversification matters in terms of whether famers become trapped or not. * Michael: it matters whether we deal with tenant farmers or farmers that actually own the land – latter have more options for market diversification. * Ben: here’s a great paper to read https://core.ac.uk/download/pdf/153400099.pdf <https: ?url="https%3A%2F%2Fcore.ac.uk%2Fdownload%2Fpdf%2F153400099.pdf&data=02%7C01%7Cbernard.conilhdebeyssac%40helvetas.org%7Ccd84126a4bea49c0e6e208d766aba471%7C060d649d2c9344d28200a3eb9f3c4160%7C0%7C1%7C637090759703797015&sdata=VRznAhgfH17FHGKnI%2B9L1MAETJqb6wczYtMNWuWDtaM%3D&reserved=0" eur02.safelinks.protection.outlook.com=""> (thanks Ben!) * Jose Luis: Contracts served as collaterals for accessing loans in Bolivia * Julian: we need to pay attention to how relationships around contract farming are developed and managed – only those relationships that are beneficial for both sides will be sustained – which points out to the need to adapt relationships over time and as contexts change (adaptability) * Mike: It is important to understand how value and risks are shared and the factors that influence power-relationships – we should therefore not only look at the business model (the contract) but consider the wider context that informs/influences relationships.
Regarding my question (risk of being trapped in an unbeneficial relationship), I find particularly the last two points (from Julian and Mike) of interest: a) What is the experience with the adaptability of contractual relationships to changing contexts/market conditions? And b) What other measures have projects that promote contract farming taken to influence power-relationships?
I apologise to the E+I network focal persons for hijacking the discussion. I find it however important to avoid the impression that there are only simple solutions to complex development questions – hence I am trying to understand the systemic dimension behind contract farming, and how a market system can be facilitated that is adaptable and ensures better inclusion of disadvantaged groups.
Best regards, Matt
Nov. 11, 2019,
1:30 p.m.
Matthias Herr
Dear All,
Thank you so much for these insights. A few key messages that I took out are:
* Fouzia: Contract farming as a interim or transitional arrangement that empowers farmers and enables them also to grow and move beyond an individual contracts; also the size and degree of market diversification matters in terms of whether famers become trapped or not. * Michael: it matters whether we deal with tenant farmers or farmers that actually own the land – latter have more options for market diversification. * Ben: here’s a great paper to read https://core.ac.uk/download/pdf/153400099.pdf (thanks Ben!) * Jose Luis: Contracts served as collaterals for accessing loans in Bolivia * Julian: we need to pay attention to how relationships around contract farming are developed and managed – only those relationships that are beneficial for both sides will be sustained – which points out to the need to adapt relationships over time and as contexts change (adaptability) * Mike: It is important to understand how value and risks are shared and the factors that influence power-relationships – we should therefore not only look at the business model (the contract) but consider the wider context that informs/influences relationships.
Regarding my question (risk of being trapped in an unbeneficial relationship), I find particularly the last two points (from Julian and Mike) of interest: a) What is the experience with the adaptability of contractual relationships to changing contexts/market conditions? And b) What other measures have projects that promote contract farming taken to influence power-relationships?
I apologise to the E+I network focal persons for hijacking the discussion. I find it however important to avoid the impression that there are only simple solutions to complex development questions – hence I am trying to understand the systemic dimension behind contract farming, and how a market system can be facilitated that is adaptable and ensures better inclusion of disadvantaged groups.
Best regards, Matt
Nov. 11, 2019,
9:44 a.m.
Mike Albu
Hi Fouzia, Matthias,
Thanks for your insightful observations on the contrasts between contract farming / outgrower schemes in Malawi (tobacco) <https: 05="" 2019="" audio="" how-a-guardian-story-led-to-a-landmark-case-against-big-tobacco="" news="" nov="" www.theguardian.com=""> and Bangladesh (maize) <https: en="" making-markets-work-for-the-jamuna-padma-and-teesta-chars-m4c.html="" project="" project-finder="" projects-and-countries="" search-projects="" show="" www.swisscontact.org="">.
We tend to be preoccupied with how added-value (profit) is shared in such arrangements, but the lesson here is surely that we also need to think carefully about how risk is shared. Debt-traps mostly arise from grossly unequal risk sharing, rather than a deliberate corporate strategy to impoverish farmers.
It seems to me that in both cases it largely depends on the power-relationships between farmer/outgrower and contractor/buyer. So factors such as monopoly control, unequal access to information, collective agency, social status (class/caste/ethnicity) and of course gender norms… will alll play a part in determining the relative power of each party and thus how value and risk is shared.
As market facilitators concerned with ensuring lasting pro-poor benefits from such arrangements, the implication must be to avoid being fixated on the particular business model (in a narrow sense), but rather consider the wider context (i.e. the conditions that shape farmers' relative power). We cannot always change those conditions quickly (or even at all). But we can, at the very least, ensure that we are aware of them, and so avoid promoting contractual arrangements that are highly risky for farmers. If we also monitor the relationships over time (as Fouzia’s programme clearly did) we may spot opportunities to intervene in ways that shift the conditions in favour of people living in poverty. Now that is systemic change!
best Mike Albu
Director | BEAM Exchange www.beamexchange.org <http: www.beamexchange.org="">
Nov. 9, 2019,
6:19 a.m.
Julian Hamilton-Peach
Hi Matt,
In my experience, any commercial relationship that is fair for all parties works well enough on the long-term. Especially when the terms of the agreement are discussed as the context changes over the years. We have only a few good examples.
Contract farming fails mainly because the buyer seeks to give minimum return to the farmers and hopes they won’t complain. Some situations:
1/ With grains, the main problem is when the buyer pays a price around or slightly above the prevailing harvest price which is a low point in the price curve. The farmers are not stupid and know the buyer is holding the grain and selling at the higher point in the curve but not sharing this gain with them.
2/ With cash crops, the difference between farm gate and wholesale is so large that farmers feel they have been screwed. If the buyer explains the difference, shows the costs incurred between farm gate and wholesale, then farmers stay in the partnership.
3/ The other problem is when the farmers’ debt is seen as ‘their problem’ when quite often it is changing circumstances or unrealistic assumptions about adoption of technique that caused their inability to repay.
4/ And finally, a politician or representative for the farmers’ sometimes takes the stage during the process. This can help, but usually doesn’t as their style of interaction is confrontational rather than collaborative.
After a couple of seasons of 1,2,3 or 4 when the farmers realise what’s happening, they act to get a better deal and so the relationship staggers and then breaks.
Bottom line: if a donor wants to help a value chain grow, or to help farmers get a better deal, it should pay more attention to how the partnership will be developed and sustained. Imbalance tips over eventually. But this is added costs for longer-term gain, and not many donors are willing to pay for that, despite the S in SDG.
Would anybody like to pay for a review of 'partnerships in contract farming'?
Thanks, Julian
Nov. 8, 2019,
11:45 a.m.
José Luis Pereira
Hi fellows:
In Bolivia, contract farming has been used with success as formal guarantee for credits. The financial authority includes these contracts as list of new acceptable collateral. Some special conditions are needed in the contract order to be considered, for example, legal and financial situation of the buyer company, the previous trade relation between the company and the farmers, etc. Our SDC Rural Market project facilitated this business model during the first phase 2014-17. Best regards
José Luis Pereira O Oficial Nacional de Programa Embajada de Suiza Cooperación Suiza en Bolivia Calle 13, No. 455 Esq. Av. 14 de Septiembre, Obrajes Casilla 4679, La Paz – Bolivia Linea Directa ( +591 2) 2617307 Telf. + 591 2 2751001 Int. 800583 Cel. + 591 76760003 Fax + 591 2 2140884 [Hidden email] <mailto:joseluis.pereira@eda.admin.ch> www.eda.admin.ch/lapaz [cid:image001.png@01D3B185.4393E910] <https: embajadasuizalapaz="" www.facebook.com="">[cid:image002.jpg@01D3B18F.281C4F60] <https: cosudebolivia="" user="" www.youtube.com=""> Este correo electrónico puede contener secretos de fabricación o información privilegiada, sin revelar o confidencial. Si usted ha recibido este correo electrónico por equivocación, por la presente usted es notificado que cualquier revisión, copiado o distribución queda estrictamente prohibida. Por favor infórmenos inmediatamente y destruya la información original recibida. Gracias por su cooperación
Nov. 8, 2019,
8:44 a.m.
Ben Taylor
Hi Matt,
My colleague Giel Ton and others wrote an excellent paper last year entitled: Contract farming for improving smallholder incomes: What can we learn from effectiveness studies?, World Development 104.
It uses a robust methodology and shows an overall positive effect but one that favours farmers who already have greater assets.
Agora Global is a limited company registered in England and Wales. Co. No. 11297828
Nov. 8, 2019,
6:12 a.m.
[Hidden email]
Hi Matthias
An important distinction of this particular contract farming scheme is that it involves tenant/migrant farmers who do not have their own landholdings and seem to be restricted to one source of income. This makes them very vulnerable.
It is different in Zimbabwe where farmers own the land that they grow tobacco on; and they are able to develop multiple income streams.
We have several good examples of contract farming schemes that accrue tangible benefits to smallholders.
Regards
Michael
Michael Dawes | Director | Agricultural Partnerships Trust Mobile: +263-772212201 | E-mail: <mailto:[Hidden email]> [Hidden email] Head Office Phone: +263-4-744559 Head Office Address: 11 Hodson Avenue, Alexandra Park, Harare, Zimbabwe
Website: <http: apt.co.zw=""> http://apt.co.zw
Nov. 7, 2019,
8:10 p.m.
Fouzia Nasreen
Hi Matthias It is an interesting point you raise. Sharing some thoughts…
Relating to my experience in Bangladesh, we found the contract farming model worked well in case of the maize crop. In regions where fallow land was suitable for maize and farmers were not aware of the high demand, contract farming was a mechanism to introduce this crop to farmers. The model reduced risks of farmers, as partial costs of the inputs were taken care of and the market was assured.
Couple of seasons later, once the farmers realized benefits of growing maize, we found that the contract farming model slowly diminished from the region. The experience of being in a contract farming model made the new maize farmers confident. They learned to produce quality maize, increased land for production, became aware of the buyers, etc.– hence did not need to be in a contract farming model later.
With respect to the risk of being trapped in debt through this model, I think it is likely to happen in crops with limited buyers like the tobacco. And also when the entire costs of production are paid for them and the farmers have nowhere to sell (the quality they produce) other than to the contracting company.
In case of maize, we did look into this debt risk and found that farmers especially in case of the chars (riverine and vulnerable locations of Northern Bangladesh) actually valued the model as they did not have sufficient resources initially to buy inputs and also wanted to have an assured market for the quality produce- which the contract farming model provided them with. Interestingly, in some cases, we found farmers had built good relations with the contractor and keeping the contractor informed, sold the maize to other buyers when the contractor did not have enough money to purchase all of them – and later paid him for the inputs cots.
Btw, contracts in rural areas in crops like maize are usually not written out as they do not have much legal implication. However similar arrangements as in contract farming existed between traders and farmers which we referred to as “outgrower schemes” in our interventions.
Regards Fouzia
Fouzia Nasreen Senior Technical Advisor
Swisscontact │Swiss Foundation for Technical Cooperation Mobile: +1 647 402 2272 Skype: fouzia.nasreen www.swisscontact.org <http: www.swisscontact.org="">
Nov. 7, 2019,
3:58 p.m.
Matthias Herr
Dear Colleagues
This may come a bit late, but I stumbled across a Guardian podcast today that made me think about the exchange on contract farming below. To say it upfront: I’m not a contract farming specialist nor an agriculture expert, but I’m curious to know what you think about my question.
Mikro-finance has been seen as the solution to poverty by many, but in recent years, a more differentiated view emerged. Micro-finance schemes often lock poor people in a debt trap.
Similarly it seems that contract farming emerges as the solution for poor farmer households. A recent podcast by The Guardian however casts some doubts on this - please take a few minutes time and listen:
The research on which the podcast is based concerns tobacco farming. It describes how poor farmers are trapped in poverty by the embedded loan scheme in contract farming.
My question: Has anyone done some research on this risk? Perhaps more related to the typical agri sectors we tend to work in? How do those projects that promote contract farming ensure that small producers do not end in a poverty trap?
Really interested in your thoughts!
Best regards, Matt
Matthias Herr Regional Director East and Southeast Europe Programme ____________________________________________ HELVETAS Swiss Intercooperation Maulbeerstrasse 10<x-apple-data-detectors: 1="">, PO Box 6724, 3001 Bern, Switzerland Phone +41 31 385 10 13<tel:+41%2031%20385%2010%2013>
The contract farming system seems to be a solution for the safe disposal of farmers' products and for processors a secure supply solution. In view of what is happening in Kirgistan, as you said, price is the determining factor that makes the system not work. For the producer to accept to operate in this system, he must have an advantage that selling on the open market does not allow him. The negotiated price must be an average price that does not overburden the processor and also allows the producer to benefit from his work.
Olga De : [Hidden email] [mailto:sdcprivatesectordevelopment@dgroups.org] De la part de Elisabeth Katz Riaz Envoyé : samedi 26 octobre 2019 09:16 À : SDC e+i network Private Sector Development <[Hidden email]> Cc : 'Schneider Nadia EDA SQN' <[Hidden email]> Objet : [privatesectordevelopment] RE: Flash of Inspiration no. 9: Impact@Scale in Agriculture
Dear Katrin and others
It is very interesting to read that contract farming for vegetable production as raw materials for processing companies functions well in Kosovo, as it should function as per economic theories. Here in Kyrgyzstan, all kinds of organisations and projects have been trying a lot of approaches to secure sufficient vegetable raw material supply to processing companies over more than 10 years. In most cases, the efforts fail earlier or later because:
a) Farmers sell their tomatoes in the open market because there the price is significantly higher (and they do this even if they signed a contract with a processor or a consolidator)
b) Farmers are not willing to grow high yielding industrial tomato varieties specially for processing because the processors’ purchase price is too low
There are diverse other issues in these farmer-processor relations, but the price is the biggest problem. Many farmers got advisory services and increased productivity by 50% and more. Secure market access does not seem to motivate farmers very much. There is one case where there are more or less stable relations between a processing company and supplier farmers – here the processing company invested a lot of efforts and money to gain their trust.
Any innovative ideas on how to resolve this price constraint for processors to get the raw material they need?
With best regards Elisabeth
Elisabeth Katz / Елизабет Катц Rural Development Specialist / Специалист по развитию сельской местности Bishkek, Kyrgyz Republic / Бишкек, Кыргызкая Резпублика +996 775 985 173
Oct. 26, 2019,
8:15 a.m.
Elisabeth Katz Riaz
Dear Katrin and others
It is very interesting to read that contract farming for vegetable production as raw materials for processing companies functions well in Kosovo, as it should function as per economic theories. Here in Kyrgyzstan, all kinds of organisations and projects have been trying a lot of approaches to secure sufficient vegetable raw material supply to processing companies over more than 10 years. In most cases, the efforts fail earlier or later because:
a. Farmers sell their tomatoes in the open market because there the price is significantly higher (and they do this even if they signed a contract with a processor or a consolidator) b. Farmers are not willing to grow high yielding industrial tomato varieties specially for processing because the processors’ purchase price is too low
There are diverse other issues in these farmer-processor relations, but the price is the biggest problem. Many farmers got advisory services and increased productivity by 50% and more. Secure market access does not seem to motivate farmers very much. There is one case where there are more or less stable relations between a processing company and supplier farmers – here the processing company invested a lot of efforts and money to gain their trust.
Any innovative ideas on how to resolve this price constraint for processors to get the raw material they need?
With best regards
Elisabeth
Elisabeth Katz / Елизабет Катц
Rural Development Specialist / Специалист по развитию сельской местности
Bishkek, Kyrgyz Republic / Бишкек, Кыргызкая Резпублика
+996 775 985 173
Oct. 24, 2019,
4:56 p.m.
Katrin Ochsenbein
Dear Colleagues
I think we have a nice example here in Kosovo for a key success factors (namely “linking”) that led to reaching impact at scale in agricultural market systems. This is particularly interesting, with Kosovo being a very small land-locked state. Numbers are of course not comparable to contexts, where population is much higher or agricultural plots much larger. Nevertheless, the speed of take-up and expansion is interesting to monitor.
Our PPSE program, implemented by Swisscontact, facilitated two main intervention to increase the quality and volume in primary production for selected sub-sector. In its first phase PPSE introduced the contract farming system in the vegetable sector by introducing qualitative industrial tomato seeds. Farmers’ main motivation for their engagement in such a model is provision of access to a secured market for their products. Contracting enables farmers to plan their annual production better and have their income secured, processors can secure consistent supply and required quality of raw material, while for collection centers, who serve as ideal intermediary actor that bridges the coordination gap between the two parties, it provides increased opportunities for profits. The pilot with tomato seeds has been adapted and expanded continuously by partners and farmers, integrating quality inputs and value-added services into contract farming system. By the end of Phase 1, number of PPSE beneficiary farmers integrated in the contract farming has scaled up to around 410, cultivating around 325 hectares, expanding across all regions in Kosovo and including other subsectors, such as MAPs.
In the second phase, the contract farming is further expanding, where existing contractors (collection centers and processors) are increasing their capacities new ones are emerging, increasing the number of contracted farmers and offering more services to them, such as specialized seedlings, advisory services, access to machinery (harvesters, planting machines, etc.), contributing to increase in product quality and yield. The intervention of contract farming was also joint with another intervention of PPSE which related to specialized seedling producers (e.g. supporting nurseries with technology investment in facilities and know-how). As of now, the number of PPSE beneficiary farmers in contract farming, since Phase 1, is estimated at around 645 with a total area of around 869 hectares. It is becoming a very popular modality in Kosovo for small-holder farmers to structure their market access.
Support around contract farming, particularly in the MAPs sector, continues to be very productive and with high growth potential. The success of contract farming has led to a higher interest and involvement of donors for this sector, for which the PPSE team has responded with intensification of coordination and exchange of information with other donor agencies. The team plans further to intensify and expand integration of partnering nurseries within the contract farming interventions. It is expected that the specialized seedling production will be copied by other producers and this will lead to the desired systemic change in the market which aims at changing the way the farmers produce seedlings in Kosovo, and eventually lead to scale.
For further information: https://www.swisscontact.org/nc/en/projects-and-countries/search-projects/project-finder/project/-/show/promoting-private-sector-employment-ppse.html
I would be interested in particular in examples from other small-scale economies.
Best, Katrin
Oct. 24, 2019,
5:47 a.m.
Guido Beltrani
***sorry for cross-posting***
Welcome to the ninth ‘Flash of Inspiration’ from the e+i & CEP F2F 2019 on the topic of Impact@Scale in Agriculture. During the market stall session at the F2F in Solothurn, we heard very interesting insights about reaching impact at scale in agricultural market systems (access all market stall posters <https: content="" ei="" pages="" sessionprofile.aspx?sessionid="191" site="" www.shareweb.ch="">): [cid:image003.jpg@01D58A3F.504B1BD0]
· The Inclusive Rural Markets project, funded by SDC and SIDA in Bolivia, has contributed to systemic changes in several agricultural value chains (dairy, fruits, etc.). Between 2015 and 2017, more than 14’000 families have benefited from an increase of their income by 72%. One key success factor was applying Market Systems Development in analysis and implementation combined with a gender approach.
· NUCAFE is a Ugandan farmer-owned social enterprise that delivers high-end services to over 1.5 million smallholder coffee farmers. NUCAFE does not buy coffee but offers paying services to farmers (e.g. market linkage, quality enhancement, etc.), helping them to add value to their coffee. NUCAFE benefits from the support of SDC Social Entrepreneurship Program. A key success factor for reaching scale was to move from social activism to social entrepreneurship.
· The SDC-funded InovAgro project works in Northern Mozambique in five market systems (maize, soya, sesame, pigeon pea and groundnuts). In partnership with private sector companies, the project has benefitted 21’000 farmers, enabling them to increase their net income by USD 460 each. One lesson of InovAgro is that corporate strategies change frequently putting the achievement of impact at scale at risk; a diverse portfolio of partners helps mitigating this risk.
By the way, talking about agriculture: if you would like to learn more about agricultural insurance, have a look at the material from the F2F session on agriculture insurance for smallholder farmers <https: content="" ei="" pages="" sessionprofile.aspx?sessionid="288" site="" www.shareweb.ch="">.
Sharing is caring! Please share your experiences and thoughts:
è Which are your key success factors that led to reaching impact at scale in agricultural market systems?
è From which mistakes have you drawn the most important lessons regarding reaching impact at scale?
If you have any technical issues, please contact Annick Vollmar (annick.vollmar@helvetas.org <mailto:[Hidden email]>). Please note that access to the event documents is limited to registered e+i Shareweb Users. Please click here to register <https: content="" ei="" pages="" pages.aspx?smartid="2226&item1=network-registration" site="" www.shareweb.ch="">.
Best regards, Guido Beltrani
Dr Guido Beltrani Head of sectorial policy Employment & Income │Engagement with the Private Sector
Federal Department of Foreign Affairs FDFA Swiss Agency for Development and Cooperation SDC Division Latin America and the Caribbean
This e-mail may contain trade secrets or privileged, undisclosed or otherwise confidential information. If you have received this e-mail in error, you are hereby notified that any review, copying or distribution of it is strictly prohibited. Please inform us immediately and destroy the original transmittal. Thank you for your cooperation.</https:></mailto:[Hidden email]></https:></https:>
Nov. 12, 2019, 1:09 p.m.
Bernhard CONILH de BEYSSAC
Thank you Matt for such a summary. I also believe that contract farming is certainly not the only and single transaction mode to promote and it doesn’t guarantee equity, sustainability, shared risks and profits. Contract farming can be terrible for small farmers or can be an opportunity for some of them.
I think that some forms of “contract farming” should be negotiated with stakeholders far beyond producers and buyers: it should involve service providers (technical et financial) and some regulators. I don’t say that all should sign a “multi stakeholder contract”, no ! I am saying that any transaction mode is influence by other stakeholders active in a market system (I believe it is also Mike’s comment). WE should avoid isolating transactions from the whole “market system”.
In practice, I use the term “collective business strategy” to describe all the collaborative agreements (formal or not) between essential, support and regulatory actors involved in a single market systems. Such collective business strategy can secure bilateral transactions, coordinate support (technical and financial) services, identify systemic investments that will unlock systemic functions for the benefit of the whole system.
It is time to go away form single business models, business plans and transactions and to adopt and support collective business strategies, and a flow of transactions (vertically and horizontally) with a conducive roles of regulators (public or private).
Single businesses will be sustainable and inclusive if they voluntarily participate and contribute to the functions of market system in which they do their business, and transactions shouldn’t be isolated from other transactions upstream and downstream in the system : they all have to be inclusive, successful and fair.
Shall we introduce the concept of “permabusiness” ? 😊
Bernard CONILH de BEYSSAC
Conseiller Régional Economies Inclusives & Durables - Afrique de l’Ouest
Regional Inclusive & Sustainable Economies Advisor - Western Africa
HELVETAS Swiss Intercooperation
Quartier Zogona, 488 rue Pougl-Maka
06 BP 9051 Ouagadougou
Tél : +226 25 36 37 73
Mobile : +226 64 97 83 54
email : [Hidden email] <mailto:[Hidden email]>; http://www.helvetas.org <http: www.helvetas.org="">
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Please, consider the environment before printing this e-mail
Be GREEN, keep it on the SCREEN
De : [Hidden email] <[Hidden email]> De la part de Matthias Herr
Envoyé : lundi 11 novembre 2019 13:32
À : SDC e+i network Private Sector Development <[Hidden email]>
Objet : [privatesectordevelopment] Flash of Inspiration no. 9: Impact@Scale in Agriculture
Dear All,
Thank you so much for these insights. A few key messages that I took out are:
* Fouzia: Contract farming as a interim or transitional arrangement that empowers farmers and enables them also to grow and move beyond an individual contracts; also the size and degree of market diversification matters in terms of whether famers become trapped or not.
* Michael: it matters whether we deal with tenant farmers or farmers that actually own the land – latter have more options for market diversification.
* Ben: here’s a great paper to read https://core.ac.uk/download/pdf/153400099.pdf <https: ?url="https%3A%2F%2Fcore.ac.uk%2Fdownload%2Fpdf%2F153400099.pdf&data=02%7C01%7Cbernard.conilhdebeyssac%40helvetas.org%7Ccd84126a4bea49c0e6e208d766aba471%7C060d649d2c9344d28200a3eb9f3c4160%7C0%7C1%7C637090759703797015&sdata=VRznAhgfH17FHGKnI%2B9L1MAETJqb6wczYtMNWuWDtaM%3D&reserved=0" eur02.safelinks.protection.outlook.com=""> (thanks Ben!)
* Jose Luis: Contracts served as collaterals for accessing loans in Bolivia
* Julian: we need to pay attention to how relationships around contract farming are developed and managed – only those relationships that are beneficial for both sides will be sustained – which points out to the need to adapt relationships over time and as contexts change (adaptability)
* Mike: It is important to understand how value and risks are shared and the factors that influence power-relationships – we should therefore not only look at the business model (the contract) but consider the wider context that informs/influences relationships.
Regarding my question (risk of being trapped in an unbeneficial relationship), I find particularly the last two points (from Julian and Mike) of interest: a) What is the experience with the adaptability of contractual relationships to changing contexts/market conditions? And b) What other measures have projects that promote contract farming taken to influence power-relationships?
I apologise to the E+I network focal persons for hijacking the discussion. I find it however important to avoid the impression that there are only simple solutions to complex development questions – hence I am trying to understand the systemic dimension behind contract farming, and how a market system can be facilitated that is adaptable and ensures better inclusion of disadvantaged groups.
Best regards,
Matt
Nov. 11, 2019, 1:30 p.m.
Matthias Herr
Thank you so much for these insights. A few key messages that I took out are:
* Fouzia: Contract farming as a interim or transitional arrangement that empowers farmers and enables them also to grow and move beyond an individual contracts; also the size and degree of market diversification matters in terms of whether famers become trapped or not.
* Michael: it matters whether we deal with tenant farmers or farmers that actually own the land – latter have more options for market diversification.
* Ben: here’s a great paper to read https://core.ac.uk/download/pdf/153400099.pdf (thanks Ben!)
* Jose Luis: Contracts served as collaterals for accessing loans in Bolivia
* Julian: we need to pay attention to how relationships around contract farming are developed and managed – only those relationships that are beneficial for both sides will be sustained – which points out to the need to adapt relationships over time and as contexts change (adaptability)
* Mike: It is important to understand how value and risks are shared and the factors that influence power-relationships – we should therefore not only look at the business model (the contract) but consider the wider context that informs/influences relationships.
Regarding my question (risk of being trapped in an unbeneficial relationship), I find particularly the last two points (from Julian and Mike) of interest: a) What is the experience with the adaptability of contractual relationships to changing contexts/market conditions? And b) What other measures have projects that promote contract farming taken to influence power-relationships?
I apologise to the E+I network focal persons for hijacking the discussion. I find it however important to avoid the impression that there are only simple solutions to complex development questions – hence I am trying to understand the systemic dimension behind contract farming, and how a market system can be facilitated that is adaptable and ensures better inclusion of disadvantaged groups.
Best regards,
Matt
Nov. 11, 2019, 9:44 a.m.
Mike Albu
Thanks for your insightful observations on the contrasts between contract farming / outgrower schemes in Malawi (tobacco) <https: 05="" 2019="" audio="" how-a-guardian-story-led-to-a-landmark-case-against-big-tobacco="" news="" nov="" www.theguardian.com=""> and Bangladesh (maize) <https: en="" making-markets-work-for-the-jamuna-padma-and-teesta-chars-m4c.html="" project="" project-finder="" projects-and-countries="" search-projects="" show="" www.swisscontact.org="">.
We tend to be preoccupied with how added-value (profit) is shared in such arrangements, but the lesson here is surely that we also need to think carefully about how risk is shared. Debt-traps mostly arise from grossly unequal risk sharing, rather than a deliberate corporate strategy to impoverish farmers.
It seems to me that in both cases it largely depends on the power-relationships between farmer/outgrower and contractor/buyer. So factors such as monopoly control, unequal access to information, collective agency, social status (class/caste/ethnicity) and of course gender norms… will alll play a part in determining the relative power of each party and thus how value and risk is shared.
As market facilitators concerned with ensuring lasting pro-poor benefits from such arrangements, the implication must be to avoid being fixated on the particular business model (in a narrow sense), but rather consider the wider context (i.e. the conditions that shape farmers' relative power).
We cannot always change those conditions quickly (or even at all). But we can, at the very least, ensure that we are aware of them, and so avoid promoting contractual arrangements that are highly risky for farmers.
If we also monitor the relationships over time (as Fouzia’s programme clearly did) we may spot opportunities to intervene in ways that shift the conditions in favour of people living in poverty. Now that is systemic change!
best
Mike Albu
Director | BEAM Exchange
www.beamexchange.org <http: www.beamexchange.org="">
Nov. 9, 2019, 6:19 a.m.
Julian Hamilton-Peach
In my experience, any commercial relationship that is fair for all parties works well enough on the long-term. Especially when the terms of the agreement are discussed as the context changes over the years. We have only a few good examples.
Contract farming fails mainly because the buyer seeks to give minimum return to the farmers and hopes they won’t complain. Some situations:
1/ With grains, the main problem is when the buyer pays a price around or slightly above the prevailing harvest price which is a low point in the price curve. The farmers are not stupid and know the buyer is holding the grain and selling at the higher point in the curve but not sharing this gain with them.
2/ With cash crops, the difference between farm gate and wholesale is so large that farmers feel they have been screwed. If the buyer explains the difference, shows the costs incurred between farm gate and wholesale, then farmers stay in the partnership.
3/ The other problem is when the farmers’ debt is seen as ‘their problem’ when quite often it is changing circumstances or unrealistic assumptions about adoption of technique that caused their inability to repay.
4/ And finally, a politician or representative for the farmers’ sometimes takes the stage during the process. This can help, but usually doesn’t as their style of interaction is confrontational rather than collaborative.
After a couple of seasons of 1,2,3 or 4 when the farmers realise what’s happening, they act to get a better deal and so the relationship staggers and then breaks.
Bottom line: if a donor wants to help a value chain grow, or to help farmers get a better deal, it should pay more attention to how the partnership will be developed and sustained. Imbalance tips over eventually. But this is added costs for longer-term gain, and not many donors are willing to pay for that, despite the S in SDG.
Would anybody like to pay for a review of 'partnerships in contract farming'?
Thanks,
Julian
Nov. 8, 2019, 11:45 a.m.
José Luis Pereira
In Bolivia, contract farming has been used with success as formal guarantee for credits. The financial authority includes these contracts as list of new acceptable collateral. Some special conditions are needed in the contract order to be considered, for example, legal and financial situation of the buyer company, the previous trade relation between the company and the farmers, etc. Our SDC Rural Market project facilitated this business model during the first phase 2014-17. Best regards
José Luis Pereira O
Oficial Nacional de Programa
Embajada de Suiza
Cooperación Suiza en Bolivia
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Nov. 8, 2019, 8:44 a.m.
Ben Taylor
My colleague Giel Ton and others wrote an excellent paper last year
entitled:
Contract farming for improving smallholder incomes: What can we learn from
effectiveness studies?, World Development 104.
It uses a robust methodology and shows an overall positive effect but one
that favours farmers who already have greater assets.
I can provide a copy if of interest.
Dr. Ben Taylor
*CEO*
W: www.agoraglobal.org
Skype: ben.taylor.cambridge
Agora Global is a limited company registered in England and Wales. Co. No.
11297828
Nov. 8, 2019, 6:12 a.m.
[Hidden email]
An important distinction of this particular contract farming scheme is that it involves tenant/migrant farmers who do not have their own landholdings and seem to be restricted to one source of income. This makes them very vulnerable.
It is different in Zimbabwe where farmers own the land that they grow tobacco on; and they are able to develop multiple income streams.
We have several good examples of contract farming schemes that accrue tangible benefits to smallholders.
Regards
Michael
Michael Dawes | Director | Agricultural Partnerships Trust
Mobile: +263-772212201 | E-mail: <mailto:[Hidden email]> [Hidden email]
Head Office Phone: +263-4-744559
Head Office Address: 11 Hodson Avenue, Alexandra Park, Harare, Zimbabwe
Website: <http: apt.co.zw=""> http://apt.co.zw
Nov. 7, 2019, 8:10 p.m.
Fouzia Nasreen
It is an interesting point you raise.
Sharing some thoughts…
Relating to my experience in Bangladesh, we found the contract farming model worked well in case of the maize crop. In regions where fallow land was suitable for maize and farmers were not aware of the high demand, contract farming was a mechanism to introduce this crop to farmers. The model reduced risks of farmers, as partial costs of the inputs were taken care of and the market was assured.
Couple of seasons later, once the farmers realized benefits of growing maize, we found that the contract farming model slowly diminished from the region.
The experience of being in a contract farming model made the new maize farmers confident. They learned to produce quality maize, increased land for production, became aware of the buyers, etc.– hence did not need to be in a contract farming model later.
With respect to the risk of being trapped in debt through this model, I think it is likely to happen in crops with limited buyers like the tobacco. And also when the entire costs of production are paid for them and the farmers have nowhere to sell (the quality they produce) other than to the contracting company.
In case of maize, we did look into this debt risk and found that farmers especially in case of the chars (riverine and vulnerable locations of Northern Bangladesh) actually valued the model as they did not have sufficient resources initially to buy inputs and also wanted to have an assured market for the quality produce- which the contract farming model provided them with. Interestingly, in some cases, we found farmers had built good relations with the contractor and keeping the contractor informed, sold the maize to other buyers when the contractor did not have enough money to purchase all of them – and later paid him for the inputs cots.
Btw, contracts in rural areas in crops like maize are usually not written out as they do not have much legal implication. However similar arrangements as in contract farming existed between traders and farmers which we referred to as “outgrower schemes” in our interventions.
Regards
Fouzia
Fouzia Nasreen
Senior Technical Advisor
Swisscontact │Swiss Foundation for Technical Cooperation
Mobile: +1 647 402 2272
Skype: fouzia.nasreen
www.swisscontact.org <http: www.swisscontact.org="">
Nov. 7, 2019, 3:58 p.m.
Matthias Herr
This may come a bit late, but I stumbled across a Guardian podcast today that made me think about the exchange on contract farming below. To say it upfront: I’m not a contract farming specialist nor an agriculture expert, but I’m curious to know what you think about my question.
Mikro-finance has been seen as the solution to poverty by many, but in recent years, a more differentiated view emerged. Micro-finance schemes often lock poor people in a debt trap.
Similarly it seems that contract farming emerges as the solution for poor farmer households. A recent podcast by The Guardian however casts some doubts on this - please take a few minutes time and listen:
https://www.theguardian.com/news/audio/2019/nov/05/how-a-guardian-story-led-to-a-landmark-case-against-big-tobacco
The research on which the podcast is based concerns tobacco farming. It describes how poor farmers are trapped in poverty by the embedded loan scheme in contract farming.
My question: Has anyone done some research on this risk? Perhaps more related to the typical agri sectors we tend to work in? How do those projects that promote contract farming ensure that small producers do not end in a poverty trap?
Really interested in your thoughts!
Best regards,
Matt
Matthias Herr
Regional Director East and Southeast Europe Programme
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Phone +41 31 385 10 13<tel:+41%2031%20385%2010%2013>
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Oct. 28, 2019, 8:29 a.m.
Olga Bakou
The contract farming system seems to be a solution for the safe disposal of farmers' products and for processors a secure supply solution.
In view of what is happening in Kirgistan, as you said, price is the determining factor that makes the system not work.
For the producer to accept to operate in this system, he must have an advantage that selling on the open market does not allow him. The negotiated price must be an average price that does not overburden the processor and also allows the producer to benefit from his work.
Olga
De : [Hidden email] [mailto:sdcprivatesectordevelopment@dgroups.org] De la part de Elisabeth Katz Riaz
Envoyé : samedi 26 octobre 2019 09:16
À : SDC e+i network Private Sector Development <[Hidden email]>
Cc : 'Schneider Nadia EDA SQN' <[Hidden email]>
Objet : [privatesectordevelopment] RE: Flash of Inspiration no. 9: Impact@Scale in Agriculture
Dear Katrin and others
It is very interesting to read that contract farming for vegetable production as raw materials for processing companies functions well in Kosovo, as it should function as per economic theories. Here in Kyrgyzstan, all kinds of organisations and projects have been trying a lot of approaches to secure sufficient vegetable raw material supply to processing companies over more than 10 years. In most cases, the efforts fail earlier or later because:
a) Farmers sell their tomatoes in the open market because there the price is significantly higher (and they do this even if they signed a contract with a processor or a consolidator)
b) Farmers are not willing to grow high yielding industrial tomato varieties specially for processing because the processors’ purchase price is too low
There are diverse other issues in these farmer-processor relations, but the price is the biggest problem. Many farmers got advisory services and increased productivity by 50% and more. Secure market access does not seem to motivate farmers very much. There is one case where there are more or less stable relations between a processing company and supplier farmers – here the processing company invested a lot of efforts and money to gain their trust.
Any innovative ideas on how to resolve this price constraint for processors to get the raw material they need?
With best regards
Elisabeth
Elisabeth Katz / Елизабет Катц
Rural Development Specialist / Специалист по развитию сельской местности
Bishkek, Kyrgyz Republic / Бишкек, Кыргызкая Резпублика
+996 775 985 173
Oct. 26, 2019, 8:15 a.m.
Elisabeth Katz Riaz
It is very interesting to read that contract farming for vegetable production as raw materials for processing companies functions well in Kosovo, as it should function as per economic theories. Here in Kyrgyzstan, all kinds of organisations and projects have been trying a lot of approaches to secure sufficient vegetable raw material supply to processing companies over more than 10 years. In most cases, the efforts fail earlier or later because:
a. Farmers sell their tomatoes in the open market because there the price is significantly higher (and they do this even if they signed a contract with a processor or a consolidator)
b. Farmers are not willing to grow high yielding industrial tomato varieties specially for processing because the processors’ purchase price is too low
There are diverse other issues in these farmer-processor relations, but the price is the biggest problem. Many farmers got advisory services and increased productivity by 50% and more. Secure market access does not seem to motivate farmers very much. There is one case where there are more or less stable relations between a processing company and supplier farmers – here the processing company invested a lot of efforts and money to gain their trust.
Any innovative ideas on how to resolve this price constraint for processors to get the raw material they need?
With best regards
Elisabeth
Elisabeth Katz / Елизабет Катц
Rural Development Specialist / Специалист по развитию сельской местности
Bishkek, Kyrgyz Republic / Бишкек, Кыргызкая Резпублика
+996 775 985 173
Oct. 24, 2019, 4:56 p.m.
Katrin Ochsenbein
I think we have a nice example here in Kosovo for a key success factors (namely “linking”) that led to reaching impact at scale in agricultural market systems. This is particularly interesting, with Kosovo being a very small land-locked state. Numbers are of course not comparable to contexts, where population is much higher or agricultural plots much larger. Nevertheless, the speed of take-up and expansion is interesting to monitor.
Our PPSE program, implemented by Swisscontact, facilitated two main intervention to increase the quality and volume in primary production for selected sub-sector. In its first phase PPSE introduced the contract farming system in the vegetable sector by introducing qualitative industrial tomato seeds. Farmers’ main motivation for their engagement in such a model is provision of access to a secured market for their products. Contracting enables farmers to plan their annual production better and have their income secured, processors can secure consistent supply and required quality of raw material, while for collection centers, who serve as ideal intermediary actor that bridges the coordination gap between the two parties, it provides increased opportunities for profits. The pilot with tomato seeds has been adapted and expanded continuously by partners and farmers, integrating quality inputs and value-added services into contract farming system. By the end of Phase 1, number of PPSE beneficiary farmers integrated in the contract farming has scaled up to around 410, cultivating around 325 hectares, expanding across all regions in Kosovo and including other subsectors, such as MAPs.
In the second phase, the contract farming is further expanding, where existing contractors (collection centers and processors) are increasing their capacities new ones are emerging, increasing the number of contracted farmers and offering more services to them, such as specialized seedlings, advisory services, access to machinery (harvesters, planting machines, etc.), contributing to increase in product quality and yield. The intervention of contract farming was also joint with another intervention of PPSE which related to specialized seedling producers (e.g. supporting nurseries with technology investment in facilities and know-how). As of now, the number of PPSE beneficiary farmers in contract farming, since Phase 1, is estimated at around 645 with a total area of around 869 hectares. It is becoming a very popular modality in Kosovo for small-holder farmers to structure their market access.
Support around contract farming, particularly in the MAPs sector, continues to be very productive and with high growth potential. The success of contract farming has led to a higher interest and involvement of donors for this sector, for which the PPSE team has responded with intensification of coordination and exchange of information with other donor agencies. The team plans further to intensify and expand integration of partnering nurseries within the contract farming interventions. It is expected that the specialized seedling production will be copied by other producers and this will lead to the desired systemic change in the market which aims at changing the way the farmers produce seedlings in Kosovo, and eventually lead to scale.
For further information: https://www.swisscontact.org/nc/en/projects-and-countries/search-projects/project-finder/project/-/show/promoting-private-sector-employment-ppse.html
I would be interested in particular in examples from other small-scale economies.
Best, Katrin
Oct. 24, 2019, 5:47 a.m.
Guido Beltrani
Welcome to the ninth ‘Flash of Inspiration’ from the e+i & CEP F2F 2019 on the topic of Impact@Scale in Agriculture.
During the market stall session at the F2F in Solothurn, we heard very interesting insights about reaching impact at scale in agricultural market systems (access all market stall posters <https: content="" ei="" pages="" sessionprofile.aspx?sessionid="191" site="" www.shareweb.ch="">):
[cid:image003.jpg@01D58A3F.504B1BD0]
· The Inclusive Rural Markets project, funded by SDC and SIDA in Bolivia, has contributed to systemic changes in several agricultural value chains (dairy, fruits, etc.). Between 2015 and 2017, more than 14’000 families have benefited from an increase of their income by 72%. One key success factor was applying Market Systems Development in analysis and implementation combined with a gender approach.
· NUCAFE is a Ugandan farmer-owned social enterprise that delivers high-end services to over 1.5 million smallholder coffee farmers. NUCAFE does not buy coffee but offers paying services to farmers (e.g. market linkage, quality enhancement, etc.), helping them to add value to their coffee. NUCAFE benefits from the support of SDC Social Entrepreneurship Program. A key success factor for reaching scale was to move from social activism to social entrepreneurship.
· The SDC-funded InovAgro project works in Northern Mozambique in five market systems (maize, soya, sesame, pigeon pea and groundnuts). In partnership with private sector companies, the project has benefitted 21’000 farmers, enabling them to increase their net income by USD 460 each. One lesson of InovAgro is that corporate strategies change frequently putting the achievement of impact at scale at risk; a diverse portfolio of partners helps mitigating this risk.
By the way, talking about agriculture: if you would like to learn more about agricultural insurance, have a look at the material from the F2F session on agriculture insurance for smallholder farmers <https: content="" ei="" pages="" sessionprofile.aspx?sessionid="288" site="" www.shareweb.ch="">.
Sharing is caring!
Please share your experiences and thoughts:
è Which are your key success factors that led to reaching impact at scale in agricultural market systems?
è From which mistakes have you drawn the most important lessons regarding reaching impact at scale?
If you have any technical issues, please contact Annick Vollmar (annick.vollmar@helvetas.org <mailto:[Hidden email]>). Please note that access to the event documents is limited to registered e+i Shareweb Users. Please click here to register <https: content="" ei="" pages="" pages.aspx?smartid="2226&item1=network-registration" site="" www.shareweb.ch="">.
Best regards,
Guido Beltrani
Dr Guido Beltrani
Head of sectorial policy
Employment & Income │Engagement with the Private Sector
Federal Department of Foreign Affairs FDFA
Swiss Agency for Development and Cooperation SDC
Division Latin America and the Caribbean
Freiburgstrasse 130, 3003 Bern, Switzerland
Tel.: +41 58 480 19 81
Fax: +41 58 464 16 93
guido.beltrani@eda.admin.ch
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