Lead topic

Sustainable financing of value chains that include smallholder farmers

The main outcome of the meeting is that financing solutions for smallholder farmers need to be embedded into holistic approaches for promoting inclusive value chain development.

This year’s meeting of the working group on Agribusiness and Inclusive Value Chain Development focused on the financing of value chains. Lessons learnt from member projects demonstrate that the financing of producers only stands a chance for success if activities are well integrated, which means that farmers need to be linked to suppliers of quality inputs and to off-takers that are willing and in a financial position to purchase at conditions that allow farmers to pay back loans and reinvest into the next growing season.

This implies that the financing of producers has to be linked to financing their upstream and downstream business partners. And — to reduce risks for lenders as a precondition for financial institutions to engage in agribusiness lending — financing solutions have to integrate advisory services that cover pre-lending and post-lending periods. Only this ensures successful use and, hence, repayment of loans. With this in mind, the working group meeting looked at topics in both areas: value chain financing and related upstream and downstream activities.

The presentations

The content of the presentations ranged from overviews on financing models for value chains to reports on hands-on approaches and instruments for promoting inclusive business models.

A representative of KfW on the Outgrower and Value Chain Fund implemented in Ghana held the keynote. Expanding on the topic Financing Value Chains, the global project Promotion of Agricultural Finance for Agri-based Enterprises in Rural Areas reported on a new tool to analyse sustainable business models as a basis for developing investment plans.

This was followed by the regional project Competitive Africa Rice Initiative (CARI), which reported on the evaluation of its Matching Fund. The programme More Income and Employment in Rural Areas of Malawi (MIERA) provided insights into the so-called Chitumba Model, which aims at securing repayment for pre-financing inputs by linking farmers to the Agricultural Commodity Exchange for selling their products.

Discussions showed the importance of linking financing aspects with opportunities for improved market access and with capacity development for increasing the financial viability of smallholder farming as well as upstream and downstream agribusiness ventures for achieving sustainable impact. A debate on target groups picked up ongoing discussions on which farmer segments could really use value chain financing in a way that contributes to advancing the aspired transformation of rural economies in Africa.

Three more presentations looked at approaches for making value chain development inclusive of smallholder farmers: one presentation highlighted the role of farmer based organisations / cooperatives and two contributions dealt with opportunities for promoting inclusive contract farming. Both development of farmer based organisations and contract farming may also serve as financing models, either as guarantor for bank lending or as an alternative to conventional financing that otherwise hardly reaches out to smallholder farmers.

Farmer based organisations and cooperatives

The Sustainable Smallholder Agri-Business Programme (SSAB) presented the Cooperative Business School curriculum as an instrument for facilitating access to finance for smallholder farmers. Well-managed cooperatives can develop financing services for members while building farmers’ capacities to improve the viability of farming systems and hence their capacities to repay loans. Financing services of cooperatives may range from linking farmers to financial institutions, developing group lending products, facilitating access to subsidies or developing alternative financing model using self-generated funds.

Promoting contract farming as an inclusive business model

To feed the development of a concept to scale up the GIZ approach for promoting contract farming as inclusive business, the sector projects Agricultural Trade and Value Chains and Agricultural Policy and Food Security conducted two surveys:

• A poll among programmes and projects about their current and future engagement in contract farming and their support needs based on 37 responses from Africa, Asia and South East Europe and
• A stocktaking regarding experiences in using the GIZ approach to promote contract farming as an inclusive business model in two francophone and two anglophone countries.

Both surveys confirmed that advice for the development of contract farming business models, contract farming management systems and contract farming financing plans are critical for creating success stories. A major need is also an excellent understanding of pricing mechanisms and other contract specifications. Accordingly, the demand for coaching of farmers and buyers for restructuring existing or the development of new contract farming schemes is more important than broad-based rolling out of training. Hence, capacities of consultants need to be developed and backstopping be assured to facilitate the provision of quality coaching services.

In this light, the interviewees emphasized that there is an urgent need to

• Establish national and regional networks to facilitate peer learning
• Set up a pool of international and regional master coaches and trainers to facilitate capacity development and backstopping
• Breath new life into the community of practice on contract farming to enable it to act as information and coordination hub

Contract farming in Nigeria

The Green Innovation Centres in Nigeria presented their approach for linking farmers to off-takers through contracting and the sector project Agricultural Trade and Value Chains reported on experiences with using the GIZ methodology for promoting inclusive contract farming. Provision of embedded services is a special feature of contract farming schemes. Besides access to markets, the contract typically includes the obligation of buyers to provide training, advice and/or access to inputs, the latter often in the form of pre-financing. Given the need of smallholders for these services alongside access to stable markets, the promotion of inclusive contract farming is on the rise. While the innovative approach developed by GIZ for promoting contract farming seems highly appreciated by practitioners, there is a great need for developing competencies and skills of coaches for accompanying contract business model development as the examples from Nigeria and the stocktaking report show.

The field visit to a group of pineapple farmers and their partner company highlighted the need to understand the contract farming business case. The example illustrated how financing solutions and extension services can be effectively integrated into supplier-buyer relationships and how contracting farmer based organisations/cooperatives can lead to success stories.

Further topics

Additional presentations highlighted the opportunities of development partnerships with the private sector and strategic alliances as well as the importance of employment impacts for making value chain development inclusive. Finally, an approach for developing good practices for scaling up innovations was presented by the Green Innovations Centres in Mali, a topic of critical interest for all working group member projects.

Abstracts of the presentations

• Understanding Work and Employment — The different ways employment figures are calculated has an impact on small-scale agriculture
• CBS and Financing Negotiation by Smallholder Cooperatives in West and Centre Africa
• Agricultural Commodity Exchange Links Farmers to Markets
• More on the results of the short survey among GIZ programmes: Update on the Up-Scaling Strategy of GIZ’s Contract Farming Approach.

About the meeting

Objectives of the meeting and way forward

Besides technical deliberations and sharing of practical know-how, the first annual meeting of the working group addressed organizational objectives. Having been one year into its implementation, it was necessary to check on the achievements of the subgroups and to consider how processes and work streams could be refined.

The division of the ABIVCD working group into three subgroups was found to be effective for targeting the overall objectives effectively. However, the group decided to rename the subgroups, narrowing down their focus areas. In order to avoid duplication of efforts, the ABIVCD working group prefers advocating for strategic linkages with other working groups and networks. Hence, interested parties are encouraged to approach the speaker of the ABIVCD working group.

Renaming of the subgroups and election of speakers

Tandem partnerships between the subgroups and sector projects were newly introduced. This should secure strong links with the GIZ head office. The three subgroups with respective speakers and new titles are listed below. Ideally, speakers work in thematically linked projects on the implementing side.

1. Viable Business Models

Speaker: Anna Karolina Lamik
Co-Speaker: Paul Cronjaeger
SV Partner: Sara Lena Jensen (SV Agricultural Trade and Value Chains)

2. AGRI Finance

Speaker: Julia Kirya
Co-Speaker: Moutalabi Baba Boukari
SV Partner: Oliver Rogall (Sector Project Agricultural Trade, Agribusiness, Agricultural Finance)

3. ICT, Training and FBO

Speaker: Berthe Minnie Balep
Co-speaker: Kossi Dodji Apedo
SV Partner: Katharina Schlemper (Strengthening Farmer Based Organisations for Sustainable Agricultural Development)

ATVET and youth employment are conceived as cross-cutting topics and are incorporated where appropriate or addressed individually.

Participation details and information on the ABIVCD working group

The ABIVCD meeting was held 10–13 April 2018 in Accra, Ghana. A total of 39 participants from 13 countries and 14 member projects attended. This is remarkable since the working group had just been divided the year before. However, more participation from national staff and West African countries is encouraged at meetings and for group work in general as it is considered beneficial for gaining more expertise.

Currently, the working group has 107 registered members (GIZ and individual members; as of 8 March 2018). 82 members operate in 21 African countries. For more information on the working group, please view the working group’s section on this website.

Download

Complete documentation of the working group meeting

Photo credits

Both images by GIZ/Working Group ABIVCD