The document summarizes experiences with promoting contract farming as an inclusive business model in Malawi and Tunisia. In Malawi, GIZ has supported contract farming through its KULIMA project by working with the agribusiness Exagris, which operates two successful contract farming schemes for soybeans and groundnuts. Lessons learned include the importance of selecting farmers based on procurement needs. In Tunisia, the IPFA project has piloted 12 contract farming projects led by farmer organizations with support from GIZ in assessing value chains, developing business models, and obtaining funding. Key to success is developing sustainable, mutually beneficial business relationships between farmers and buyers.
Financing strategies for adaptation. Presentation for CANCC
Contract Farming as an Inclusive Business Model for African Smallholder Farmers
1. Page 1
GIZ Bonn, 10th of July 2018
Sector Project ‘Agricultural Trade and Value Chains’
Heike Höffler, GIZ, Germany – heike.hoeffler@giz.de
Katharina Schlemper, GIZ, Germany – katharina.schlemper@giz.de
Sector Project ‘Agricultural Policies and Food Security’
Ousmane Djibo, GIZ, Germany – ousmane.djibo@giz.de
Petra Windisch-Stumpf, GIZ, Germany – petra.windisch@giz.de
Expert Talk
‘Contract farming as inclusive business model
for African smallholder farmers:
Results from recent stocktaking’
2. Page 2
Programme
Part I Presentation of learnings from stocktaking on contract farming (report 2018)
13:00 – 13:10 Word of Welcome Gerd Fleischer
Heike Hoeffler
13:10 – 14:15 ‘Promoting Contract Farming (CF) as inclusive business model:
Way forward for scaling up’
Contract Farming in selected partner countries - Experiences and
need for support
• ‘Good practices and experiences in Contract Farming in
Tunisia’, Initiative for Agricultural Value Chains (IFPA), GIZ Tunisia
• ‘Promoting Inclusive Contract Farming in Malawi: experiences
from technical cooperation – consolidating and scaling up
support’, More Income and Employment in Rural Areas of Malawi
(KULIMA MIERA), GIZ Malawi
Margret Will
Katharina Schlemper
Dr. Martin Baumgart
Neil Fourati
Paul Cronjaeger
Part II What next? Scaling-up contract farming
14.15 – 15:00 Open discussion to identify:
Scaling-up: Opportunities and challenges
Next steps
Wrap-up
Katharina Schlemper
Carolin Voigt
3. Page 3
Contract farming as inclusive business model for
African smallholder farmers:
Way forward for scaling up
Bonn, 10th of July 2018
Margret Will, Katharina Schlemper and Dr. Martin Baumgart
4. Page 4
Introduction to the GIZ methodology for promoting
Contract Farming as inclusive business model
5. Page 5
Success factors:
economic &
social incentives
‘win-win’ for
farmers & buyer
TRUST
Frequent risks of failure:
Contract default:
side-buying/side-selling
Weak CF business
decision-making
Underrating of
investment needs
Weak CF management
high transaction costs
Lack of proximity/
embedded services
Low farm productivity/
trade-off w/subsistence
Unfavourable
framework conditions
Top-down support, etc.
Required capacities &
change of attitudes:
CF as inclusive business
model at the interface
between smallholders
and off-taker
Modernisation/
professionalisation of
smallholder agriculture
Upgrading of services
for farmers and SMEs
(inputs, advice, finance)
Improvement of
framework conditions
(particularly infrastruc-
ture and laws, policies)
You survive
– I survive*
*citation: off-taker sugar industry, field visit, Thailand, 03/2014
Contract farming (CF) reality
and the need for change
6. Page 6
Business model of the buyer
(trader or processor)
CF is a business model
at the farm supply-firm procurement interface
linking the buyer’s strategy with the suppliers’ farming systems
Farming systems of producers
or business model
of producer organisations
CF = INTERFACE:
producer supplies
----
firm procurement
GIZ approach for promoting CF as inclusive business model
CF business model = joint business with
INTERDEPENDENCY of farmers and buyers,
and MUTUALISATION of resources and risks
producer supplies
buyer procurement
embedded services of
the buyer to producers
M. Will (2017)
7. Page 7
Promoting CF as an inclusive business model
can contribute to nine out of the seventeen SDGs
If well-designed and well-managed,
CF can contribute to achieving the
following Sustainable Development Goals
(SDG):
SDG 1: no poverty
SDG 2: zero hunger
SDG 5: gender equality
SDG 8: decent work and economic growth
SDG 9: industry, innovation & infrastructure
SDG 12: respons. consumption & production
SDG 13: climate action
SDG 15: life on land
SDG 17: partnerships for the goals
9. Page 99/15
Who has done what so far using the GIZ CF product
Draft concept for scaling-up developed mid-2017, now to be finalised using the results
of:
Survey of the
engagement and interest in promoting CF in the near future (presented mid-2017):
Questionnaire answered by 37 bilateral, regional, global GIZ projects/ programmes
(23 Africa, 12 Asia, 2 South East Europe)
Stocktaking of the
experiences in using the GIZ approach (presented today):
In-depth surveys in Ghana, Kenya, Benin and Tunisia
At GIZ headquarters:
Sector Project Agricultural Policy and Food Security,
Sector Project Agricultural Trade and Value Chains,
in close collaboration with SNRD Agribusiness and Inclusive Value Chain Development (ABIVCD)
In partner countries (mainly in francophone and anglophone Africa and North Africa):
GIZ departments involved: Rural Devmt/ Agriculture and Economic Devmt/ Employment
Diverse project types: bilateral programmes, regional projects, GIAE, develoPPP, ATVET, etc.
Some 40 trainings of practitioners, trainers and consultants/ coaches realised
Consultancies/ coaching of CF business models ongoing in several countries
10. Page 10
Results in brief (1)
Challenges in promoting CF as inclusive business model
Opportunities for promoting CF as inclusive business model
If well planned and well managed, CF can be a suitable business concept amongst other
inclusive business models for furthering rural economic development.
Dealing with CF complexity:
CF is less about the contract but about complex CF business models.
Meeting indicators:
CF risks to fail when over-loading smallholders and MSMEs with high expectations.
Grasping the GIZ methodology:
Staff/ consultants often have difficulties to understand the business side of CF.
Developing required capacities:
Capacities need to be developed at all levels (staff, consultants, farmers, FBOs, buyers).
11. Page 11
Survey results mid-2017
Demand for trainings Basic trainings: about 1,500 persons
Training of Trainers/ Consultants: about 250 persons
Support required:
topics
specific CF topics (e.g. CF business model, management, financing)
documentation of success and failure stories
sharing of good practices and scalable practices
compilation of methods, new tools, materials, country-specific cases
etc.
Support required:
modes of delivery
question-answer services and backstopping
linking with experts and/ or funding opportunities
management of expert pools
regular information (e.g. newsletters, webinars, virtual exchange)
organisation of joint trainings, refresher courses, study tours
etc.
Results in brief (2)
12. Page 1212/15
Results in brief (3)
Action points for programmes/ projects in partner countries
Develop capacities of GIZ/ partner staff for planning/ supervising CF projects
Establish a pool of national and/ or regional trainers and consultants/ coaches
Combine CF with other GIZ products (FBS, FBO, SME Loop, etc.)
Support national/ regional expert networks for peer learning
Collaborate with other organisations/ donor programmes interested in GIZ CF product
Action points for the Sector Projects
Support the establishment of a pool of international experts
Facilitate the revision of existing/ development of new materials
Support programmes/ projects in developing concepts for inclusive CF
Backstopping of projects/ programmes in implementing CF projects
Development of an active Community of Practice on CF (CoP CF)
Recommendations for GIZ
13. Page 13
Sensitisation of projects and
partner organisations
Dissemination of the
stocktaking report and fact sheets
Relaunch of the
Community of Practice on CF (CoP CF)
Pool of international/ regional master
coaches/ consultants
Training of trainers and consultants (ToTC)
for international experts
(ToTC I and ToTC II in Germany)
Trainings of regional master trainers/ coaches
(one ToTC cycle in francophone Africa
and one in Anglophone Africa)
Source: Norell et Brand, 2013
13/15
Brief outlook – next steps
15. Page 15
Good practices in promoting
Contract Farming
Experiences from Tunisia
Neil Fourati, July 2018
Initiative for the Promotion of Agricultural Value Chains (IPFA)
16. Page 16
12 pilot projects identified by local committees.
The projects are mainly led by farmer organisations with the
legal forms of:
SMSA = Mutual Society for Agricultural Services
or
GDA = Group for Agricultural Development
Advice and support on investment promotion and
sustainable business model development.
Support the implementation of concrete business models
through pilot projects.
Scaling up of successful approaches.
IPFA objective:
Promote the development of sustainable & inclusive business models between
farmer organisations and processing SMEs through adapted advisory services.
IPFA technical
assistance focusing
on three axes
17. Page 17
IPFA’s approach for promoting the development of
sustainable & inclusive business models
Actual
Business
model
Upgraded
Business
Model
ready for
funding
Funding of
Business
Model
Sustainable
Business
Model
18. Page 18
Challenges vs Contract Farming (CF) requirements
Approaches required for
promoting inclusive CF
Specific challenges
in view of IPFA’s objectives
Most of the pilot projects are led by
farmer organisations without business
skills and established markets
Several SMSA/ GDA have only been
formed recently and do not have trust-
based and proven relations with their
members or with purchasing companies
Different types of business models
required for specific needs of local value
chains
No local know how about CF among
farmer organisations, SME and service
providers
Like value chain development, CF
development has to start from the
market side, not the production side.
The selection of producers for CF
therefore always has to be based on
procurement needs and supply chain
management cost-efficiency of buyers.
CF needs locally available good
advisory and financial services.
CF needs a good business/ investment
climate.
And a climate of trust is the most
important factor for the success of CF.
19. Page 19
1. Assessment phase
Activities:
Assess CF partners capacity devmt & service needs
Quick analysis of local value chain
Economic, environmental and social assessment
Development of initial CF business model and
CF management system
GIZ-tools used:
Rapid CF scheme assessment
Inventory of preconditions for CF // Value
chain mapping (ValueLinks) // CF risk profile
Business Model Canvas
SME diagnostics method
2. Business Model development phase
Activities:
Evaluation of economic, environmental and social
impacts and decision “to Go or Not to go on”
Exchange with stakeholders on how to improve their
situation and to upgrade the actual Business Model
Develop a risk management system, cost-benefit
analysis, elaboration of business/ investment plan
GIZ-tools used:
Risk management
Introduction to negotiation & contracting
Developing and negotiating pricing formulas
Strategic development plan and
business/ investment plan
3. Pilot project implementation phase
Strategic consulting for the set up and operation of
the pilot CF Business Models
Support for obtaining funding (credit, grant)
GIZ-tools used:
Principles for CF facilitation
CF management, capacity development, etc.
IPFA’s approach for coaching the pilot projects
20. Page 20
Ministry of
Agriculture
Farmers
in different areas
Technical
support
credit
Advance
payment
Export of
dried tomato
in bulk
Factory
in Italy
Technical and
financial support
Sales/off-take
commitment according
to quality requirements
GIZ IPFA
subsidy
SME
ElWafa
21. Page 21
service delivery
financial support
CoordinationGDA
Oil mill
Oil conditioning
unit
Financial
support
OrganicoliveOrganicoil
inbulk
22. Page 22
Own and subcontracted aggregation centres in 5 production zones
Farmers
One of the
world’s
leading
exporters of
dates
CF zonal supervisors and coordinators (VACPA staff)
GDAs
23. Page 23
Subcontracting
aggregators
Purchasecommitment
XQuantityofsorteddates
Commitment of purchase and technical support
CF contract ( VACPA/ Farmers)
Exclusive sales commitment for VACPA
via aggregation centre X via GDA
Technical and financial support, etc.
Organismes financiers
Sales commitment to sale dates according to quality
standards like Organic, FairTrade, Global GAP, …
Complytoquality
requirements
Technicalsupport
GDAs
Aggregation
centres
24. Page 24
Good practices:
Business-oriented approach and customized GIZ-tools to develop CF Business Models
adapted to the specific needs of different types of operators.
Integration of financial service providers and non-financial providers (as needed) from the
beginning of process.
Criteria for the selection of beneficiaries well developed and applied.
Given the role of farmers and agribusiness SME’s in CF, coaching of CF business model
development requires a tandem approach involving one agricultural expert and one SME
expert, both with knowledge about CF as an inclusive business model.
Lessons learnt:
A wide range of Business Models are possible. The most successful are :
Promoting existing market linkages between farmers/ GDA or SMSA and SMEs.
Promoting emerging SMEs aiming to extend activities involving farmers/ GDA or SMSA.
Since each case is specific, CF Business Models are not replicable and every case has to
be well analysed to develop appropriate solutions assuring a win-win situation for farmers
and SMEs.
25. Page 25
Need to sensitise farmer organisations about the objectives and potential
benefits of CF and the process of CF business model development before
starting coaching.
Improve capacity building of farmers in areas such as agri-business, risk
management and contract negotiation and organisational development of their
groups in areas such as management of farmer organisations as a business.
Selection of farmers and farmer groups within a CF development process
should be oriented by the procurement needs and management capacities of
the SME and should not be done by CF advisors or public partners.
Setting up an inclusive CF Business Model is a medium-term project since it
usually requires sufficient time and resources to become economically viable
and financially self-sustaining.
26. Page 26Contract Farming Promotion in Malawi05/09/2018
Implemented by
Promoting Inclusive Contract Farming in Malawi
experiences from technical cooperation –
consolidating and scaling up support
Expert Talk: Contract farming as inclusive business model for African smallholder
farmers: results from recent stocktaking
KULIMA More Income and Employment in Rural Areas of Malawi
Paul Cronjaeger, Advisor
10th July 2018
GIZ, Bonn
27. Page 27
Overview
Contract Farming Promotion in Malawi05.09.2018
Background to Malawi
Contract Farming in Malawi
GIZ support to promote Contract Farming as an
Inclusive Business Model (IBM)
Lessons learnt and good practices:
The example of two contract farming business
models operated by Exagris
Way forward:
The Inclusive Business (IB) Advisory Facility
28. Page 28
Malawi
Contract Farming Promotion in Malawi05.09.2018
~18m population, landlocked, presidential
democracy, one of the poorest countries in
the world (170th out of 188 in the HDI)
Most important export goods and forex
earners: tobacco (60%), tea (6%),
sugarcane (6%)
~80% of the population are smallholder
farmers relying mostly on subsistence
farming
Typical smallholder crops are maize,
cassava, beans, groundnuts, soya,
irish/sweet potato, tobacco
29. Page 29
Contract Farming (CF) in Malawi
Contract Farming Promotion in Malawi05.09.2018
Long established schemes exist:
Export oriented crops: Tobacco,
sugarcane, tea, (cotton)
Small and medium-scale enterprises
(SME): largely informal CF
„Closed“/ structured markets with
fewer big (international) players
Medium farmers targeted rather than
small farmers
Input packages include inputs for
food crops
High prevalence of child labour
30. Page 30
KULIMA More Income and Employment in Rural
Areas (MIERA)
Contract Farming Promotion in Malawi05.09.2018
MF
Domestic
Market
SF
SF
SF
Export
Markets
Service
Providers
(Commodity
Exchanges)
Farmer
Organisation
(club, association,
cooperative)
1) Inclusive
Business Models
3) Strengthening
farmer organisations
and MSME
Agro-industrial
Company
(value addition,
marketing)
MSME
Warehouses
Anchor Farm/
Nucleus Estate
2) Strengthening
service provision
Value chain integration of the target groups departing from market opportunities and
private sector interests promotion of Inclusive Business Models
31. Page 31
VC Cooperation GIAE MIERA Instrument Mix
Contract Farming Promotion in Malawi05.09.2018
Inputs Production
Aggregation/
Trading
Processing Retail
GAP
Innovations
FBS
FO
Cycle
Stakeholder
Dialogue
ToT
DA
IE
STE
LTEHCD
MIERA VC: Cassava, Soya, Groundnuts, Sunflower, Chilli/Paprika, Macadamia, Rice
GIAE VC: Cassava, Soya, Groundnuts
MSME
Loop
Support to
IBM
32. Page 32
Example: two CF schemes of Exagris Africa
(groundnuts, chilli and paprika)
Contract Farming Promotion in Malawi05.09.2018
Inputs Production
Aggregation/
Trading
Processing Retail
Integrated
Expert
FBS
FO Cycle
Aflatoxin Management
Inoculant
STE:
Outgrower
Strategy 1
IDPP
GIZ CF Training
and Assessment
LTE:
Outgrower
Strategy 2
CF Manual tools:
Business Model
Canvas, CF
costing tool
GAP
Corporate
Social
Responsi-
bility (CSR)
activities
33. Page 33Contract Farming Promotion in Malawi05.09.2018
The example of two CF business models operated by Exagris
Exagris CSR CF scheme (outgrower) Exagris CF scheme
Objectives Quality assurance products (Aflatoxin)
CSR to integrate close-by communities
as source of labour, for security reasons
Improving quality assurance products
Increasing volumes
Reducing transaction costs
CF business model Nucleus estate (80:20) and intermediary Intermediary
No. of farmers 25,000 (organised in farmer groups) No. fluctuating due to weak bonding
Exagris CF staff 2 CF managemt, 13 Community Dvmt Off. 2 CF management
Techn.assist. (TA) Support by 5 TA projects (incl. develoPPP) Exagris own funds/ financing thru banks
Challenges Side selling by farmers and side-buying by the off-taker are the greatest risks
High capacity development needs on producer and buyer levels
Short project timeframes vs. time needed to develop capacities of farmers & buyer
Focus on TA/ human capacity development neglects financing needs of CF schemes
Bottom of the pyramid farmers can only be reached if sufficient TA/ FA available
Recommendations Learn from the CSR CF scheme to re-organise the Exagris CF scheme:
Analyse risks and develop a CF business model integrating CF risk management
Develop solutions for pre-financing that do not put excessive burden on off-taker
Develop a system for selecting farmers & graduation for more embedded services
Develop a CF management system ensuring proximity of the off-taker to farmers
34. Page 34
Further challenges of CF promotion in Malawi
Contract Farming Promotion in Malawi05.09.2018
Structuring the partnerships/ format of cooperation:
Time-consuming process to discuss/ formalise partner contributions:
IDPP the right format to work with smaller private sector (PS) partners?
Ensuring partner contributions, avoiding crowding out/ market distortions
Which PS partners and which approaches for:
achieving commitment?
scaling up (to avoid crowding out and market distortions)?
Does contract farming make sense in open / food VC like groundnuts?
In general, only when an integrated approach is applied (from seed
multiplication, estate productions to processing and retailing) and an
appropriate CF business model is chosen.
But, it also depends on the situation of every single case (e.g. interdepen-
dencies of farmers and off-takers, competition on the ground, competitive-
ness with e.g. imports) there is no blue-print!
35. Page 35
Long-Term Consultancy
Way forward in Malawi
Contract Farming Promotion in Malawi05.09.2018
Stock-taking exercise locally and regionally:
What has worked (good practices in CF and CF promotion)?
What are preconditions for CF and CF support to reach scale and impact?
2nd stakeholder workshop on Inclusive Contract Farming (September 2018)
Concept development and piloting (2018-2019): MIERA IB Advisory Facility
Knowledge sharing and management platform and service provider
Offer of quick, yet tailored advisory support
Short-term to long-term support possible
CF financing support?
Link to/ cooperation with GIZ CF Approach and other work streams that
work on similar topics:
Link to the Inclusive Business Actions Network/ Sector Projects (Nawi)
Link to the Contract Farming Community of Practice (CoP CF)
Link to (agri-)finance projects (GV AGfin)? KFW? Impact Investment
CF up-scaling strategy training of local IB Advisory Facility staff?
Contribution to the establishment of a pool of regional experts
36. Page 36
Thank you! Zikomo Kwambiri! Vielen Dank!
Contract Farming Promotion in Malawi05.09.2018
Hinweis der Redaktion
In the North and center west of Tunisia which is an agricultural region but without enough added value in food processing
step to reach the goal
technical tools used by IPFA
A young entrepreneur in Jandouba start’s a project to export dried tomatoes with an investment of 47 k€ and a FC with two local farmers on 1,5 ha.
Contractred farmers with the SMES increased from 2 (2013), 6 (2016) to 16 ( 2017) up to 26 (2018)
Centralized model , Wafa SARL give farmers technical and financial support along Tomates season
In 2018, The companies is starting a new investment of 200 k€ to produce 300 Tones of dried tomatoes (X 3) and signed FC with 26 farmers to exploit 50 Ha
A young entrepreneur in Jandouba start’s a project to export dried tomatoes with an investment of 47 k€ and a FC with two local farmers on 1,5 ha.
Contractred farmers with the SMES increased from 2 (2013), 6 (2016) to 16 ( 2017) up to 26 (2018)
Centralized model , Wafa SARL give farmers technical and financial support along Tomates season
In 2018, The companies is starting a new investment of 200 k€ to produce 300 Tones of dried tomatoes (X 3) and signed FC with 26 farmers to exploit 50 Ha
The advisory Mission was done in 9 menths
Add slide on MIERA?
INFO on EXAGRIS: Established in 2008, Exagris Africa Ltd. is one of the largest cropping and livestock businesses in Malawi, committed to the development of a multi-generational business that makes a meaningful difference to people and the environment.
Exagris farms around 7,000 hectares on 14 estates, and specializes in seed production, export crops and agro-processing. 12 estates are fully operational cultivating on a cumulative 3,300 hectares out of the total 6,000 hectares. The farms are located in Mangochi, Salima, Lilongwe, Mchinji, Mzimba and Rumphi. A dynamic outgrower programme focuses on paprika, chillies and groundnuts. This involves around 15,000 smallholders from all three regions across Malawi.
Furthermore, Exagris has invested in a peanut processing and export business called AfriNut and has a shareholding in Valid Nutrition, which further strengthens its presence in the groundnut value chain.
Exagris´ mission statement is explicit on its intentions towards working with smallholder communities: ‘To be leaders in sustainable and innovative agriculture in Malawi and provide opportunities for farming communities’. This in turn is reflected further in its ‘triple bottom line’ based company strategy: Exagris seeks to find ways of engaging successfully with farming communities, and a wide range of stakeholders, to promote economic and social growth.
Exagris, through its Development Services Unit (DSU) and outgrower programme is currently working with a total of 15,000 smallholder farmers and is geared to increase to 25,000 by 2020. The three crops promoted under its outgrower programme are groundnuts, birds’ eye chilies and paprika. Through this programme the smallholder farmers are encouraged to engage in market based agriculture. However, through the Development Services Unit the smallholder farmers are supported to engage in overall participatory community development including cultivation of food security crops that the company does not buy. In this regard the smallholder farmers are taken through the entire value chain of those crops from production through processing and marketing. As a way of training the smallholder farmers in Good Agricultural Practices (GAP), the smallholder farmers are trained through demonstrations plots and also beyond the demonstrations. On each of the farms a total of 5 hectares are allocated to the smallholder farmers for their training. The produce realized from these 5 hectares is shared by the smallholder farmers to be used for seed in their own farms in the subsequent season. More demonstrations are also established in the Lead Farmers fields in the community. Short training sessions and field days are organized at different stages of the season to impart specific skills to the smallholder farmers. Exagris is mainly using the lead-farmer approach in its extension services. Buying is mainly done from individuals which currently incurs high transaction costs for small amounts of produce. Working with better organised, well-managed groups could increase efficiency and reduce these costs. Through stronger relationships with contracted farmers and more targeted extension services, quality and efficiency of buying of groundnuts and paprika / chilies could still be improved and in turn improve the income situation of the farmers.