2. Pearl’s objective
is to be a
cooperative
owned by
small-holder
farmer groups.
Summary:
• Develop coops for small holder farmers.
• Increase production with training, quality inputs, and
loan guarantees
• Specialize in market provision
2
3. Solving Underlying Problems Changes Lives
Most of the poor are
subsistence farmers: in
East Africa is 60-90% of
the people.
The poverty is profound
and the needed change
needs to be just as
deep to last.
Underlying
Problems
4. The story of subsistence farming
4 Halves of Have-Nots
Underlying
Problems
AGRICULTURE WITH FOOD CROP FOCUS NEEDED
5. Farmers
produce little
for sale
• So no
commercial
loans
• So no reliable
market causing
much waste
Food
businesses lack
crop inputs
• So limited
growth and
investment
• So they import
needed volume
competing with
nearby farmers
Dysfunction in the
Food Value Chain
Pearl must
work on
both halves
because
the
problems
are linked
in a
Vicious
Cycle
Underlying
Problems
Markets Solutions
are Needed Too
6. Agricultural Value Chain Analysis - Tanzania
Cooperatives Ecology Farm Inputs Crop Mgmt. Markets
ValueChainComponents
1)Farmer
Groups
2) Soil 3) Inputs
4)
Harvest
5)
Markets
4c) Storage
4e)
Preservation
4d)
Processing
5a) Retail
Markets
5d) Import
Competition
5c) Exports
5b)
Wholesale
Buyers
4b) Trucking
and Roads
4a) Taxes
3a) Finance
Guarantees
3b) Finance
2a) Climate
2b) Plant
Diseases
2d) Fertility
1b)
Government
Regulations
2e)
Agronomists
1a) NGO
Organizing
Assistance
3c)
Agridealers
3d) Imported
Supplies
5e) Local
Competition
1c) Culture
3e) Local
Seed
Production
2c) Land
Access
Color
code:
Green is
workable
Yellow
indicates
difficulties
Red is
serious
problems
Underlying
Problems
7. Farmers Lack
Access to Crop
Input Finance
Underlying
Problems
• With careful manual
application, it costs $200-
$1000 per acre for
seeds, fertilizer and
treatments
• There is not enough money in aid to lift farmers
out of poverty. BIG LOANS are needed; more
than microfinance offers farmers.
• Microfinance constrains people to subsistence.
8. • What is a market? -List of buyers to negotiate terms
(a business function)
• Distribution systems lacking so need market building
(rather than ‘market linkages’)
• Access paradox: market is BIG but farmer is SMALL
(too small to connect)
Farmers Lack
Access to Markets
Underlying
Problems
9. Interlocking Relationships
• Interconnecting finance,
markets and farmers is
needed
• Many microfinance and
development programs
disconnect them
• Local commercial
banks need to
be involved for
sustainability
Finance
Markets
Farmers
and
Production
Underlying
Problems
10. Key Conclusions
• Focus on food crops is needed (export crops
are only used because markets are easier)
• Massive volume is needed to meet local
market needs – so big groups required
• Farmers should and are able to produce
more but can’t without…
• Large loans and guaranteed markets, which
are lacking
Underlying
Problems
11. Strategy: Link Many Farmer Groups
Create coops/farmer
companies that are
formed from small
farmer teams.
Link coops into a large
company for strength
and market access.
12. Coops are the Answer:
• Cooperatives have been a model for
lifting farmers for over 200 years
(1810 in USA) and all cultures
• They provide sharing of production
expenses and joint
marketing, financing and
purchasing
They fail in Africa for three
primary reasons:
• Lack of trust - corruption
• Shortage of finance
• Unreliable market access
dominated by middlemen
12
13. Successful Coops Need All
FINANCE (inputs and equipment)
PURCHASE LEVERAGE (discounts on
inputs, equipment, services, etc.)
SHARED SERVICES (equip
rental, insurance, storage, processing)
Group strength for MARKETS
(larger, reliable supply gets a higher
price)
Coops
13
14. FARMING,MARKETSANDFINANCE
Farmer
Group
Farmer
Group
New Coop Structure
Accountability and mgmt with
Teams of 5-15 self-selected farmers
Structure is a combination between
savings/microloan groups and coops
Pearl Foods is Joint Venture
Between Farmers Groups and
Cheetah
JV is unifying point for coop
marketing. Controlling crops secures
investments
Multiple farmer groups come to
own Pearl; business is divided
naturally
Timu
Wakalimu
Team
Farmers
Farmer
Group
Team
Farmers
Pearl
Foods
Cheetah
(& Loan
Guarantors)
Masoko, Markets
Benki, Bank
Finance and
Accounts
Wateja Customers
(Buyers of Crops)
16. 4 Steps to Leave Subsistence Poverty
1.
Organizing
in
Registered
Groups
2.
Technical
Farming
(Agronomy
and Inputs)
3.
Large
Commercial
Loans
4.
Guaranteed
Markets
Farmer
Commercialization
Pearl prefers to partner with
NGOs
Pearl’s focus
and income
Partner w/ local
banks (metafinance)
19. Cheetah Innovation:
Metafinance
with Catalytic
First Loss Capital
• Metafinance reaches groups
rather than individuals
• Paves the way for commercial
bank finance – provides
collateral farmers lack to get
needed loans
• Metafinance linked to another
innovation: catalytic first loss
capital
• Risk tranches allow for wider
participation of lender types
• Cash sits in bank lending to
farmers, unlocking finance
Sub-Debt 2
(Mission Driven Investors)
Program Absorbed Risk
Possible
Government
or Major
NGO Shared
Risk Program
(45-60%)
Senior Debt
(Low Risk; Protected by
Other Investors)
Sub-Debt 1
(More Risk but still
Protected by Other
Investors)
10%
20%
20%
50%
21. DevelopmentProcess
Grow Enterprise
Increase number of farmers
Allow successful farmers to
double loans
Increase coop mgmt
training
Initiate Activities
Begin with harvest to establish mutual trust Continue with finance for trusted members
Organize
Recruit members and train Legally register groups
Arrange for finance and
markets
Select a Target Village
Choose target villages based on
productivity, work ethic and trust
Hold meetings in many villages and choose
best
22. Mission Summary
Strategies:
• New form of old success:
strengthen coops with sub-
groups (teams) and JV
• Commercialize farmers
• Include significant finance
• Interconnect with guaranteed
markets
Crops
Investments
(Markets and Finance)
Cash
Statistics shown are for East Africa and are approximately true nation by nation. High level view brings clarity to thousands of statistics. Using ½ approximation makes the underlying issues memorable, easier to understand, and focuses solutions more appropriately. Identifying the key summary statistics shows the relationships between thousands of underlying numbers.
Here is a typical ‘market’ for farmers: come and stand by the side of the road. Clearly that is a market that can serve only nearby farmers.It is widely agreed that in the developing world: Farmers lack access to marketsMiddle men are largely exploitativeExport crops are best bet. The first two are correct. However, export crops aren’t the best solution because meeting international standards is expensive, marketing internationally is expensive, and local demand, including high rates of malnutrition continue unaddressed. Export crops are favored because local markets are undeveloped. Typically, aid organizations speak of creating ‘market linkages’ to solve the lack of access to markets. However, to speak of linkages ignores the situation on the ground. There is no healthy distribution system in the poorest nations to link farmers into.The farmer’s biggest problem is that they are too small. They cannot meet local demands because they are too expensive to work with one-by-one and because they are not operating in a commercial fashion.Also notice that aid orgs are by their very nature not well positioned to solve the market problem – how can they enter a negotiation? What’s needed are business to enter into this opportunity/problem.
Here is a typical ‘market’ for farmers: come and stand by the side of the road. Clearly that is a market that can serve only nearby farmers.It is widely agreed that in the developing world: Farmers lack access to marketsMiddle men are largely exploitativeExport crops are best bet. The first two are correct. However, export crops aren’t the best solution because meeting international standards is expensive, marketing internationally is expensive, and local demand, including high rates of malnutrition continue unaddressed. Export crops are favored because local markets are undeveloped. Typically, aid organizations speak of creating ‘market linkages’ to solve the lack of access to markets. However, to speak of linkages ignores the situation on the ground. There is no healthy distribution system in the poorest nations to link farmers into.The farmer’s biggest problem is that they are too small. They cannot meet local demands because they are too expensive to work with one-by-one and because they are not operating in a commercial fashion.Also notice that aid orgs are by their very nature not well positioned to solve the market problem – how can they enter a negotiation? What’s needed are business to enter into this opportunity/problem.
Aid orgs don’t understand market BUILDING. Instead, they are looking for markets to plug into – that don’t exist. That’s why they do better when they work with export crops.
Farmers: business people that work hard, are transparent, compete with the world, and owners of AssociationTeams: provide training, communication, and organization to members; direction to Association (idea from microfinance)Association: increase quantity and quality of crops, arrange for finance, improve lives, owner of Joint VentureCheetah: provide investment money, audit management of Joint Venture and Association, owner of Joint Venture Joint Venture: Manage investments like warehouses and machines, find markets
Work together so that aggregated production can address giant market, be registered so that banks have a legal entity to loan to, have small sub-groups (Teams) to provide peer pressure loan enforcement and planting practices Get good training and access to high quality farm inputs to produce commercial yields per acre and qualityGet access to large loans to afford quality inputs, loans provided in kind – no cash givenGuaranteed markets (not ‘linked’) so that loans and farmer are secured, loan repaid by crop delivery, profits paid directly to farmer (usually to bank account opened in their individual name)