Photograph by P. Casier, CGIAR Annex 2 1 75663 v3 2 Growing Africa: Unlocking the Potential of Agribusiness Interviews with 23 leading agribusiness players in Africa Within the scope of this report, a range of 23 agribusiness companies active in sub-Saharan Afri- ca were interviewed, usually by phone, during August/September 2011 to acquire their percep- tions of changes and trends taking place with the agribusiness sphere. (For list of companies, see Table A3.1.) The outcomes, which are often anecdotal, from these interviews are summarized in Tables A3.2–A3.5, according to (1) constraints and concerns; (2) decision to invest: company and institutional strategies; (3) decision to invest: Sub-Saharan Africa macro advantages; and (4) obser- vations related to smallholders. Annex 2: Interviews with 23 leading agribusiness players in Africa 3 Table A3.1: Companies interviewed Company type Company name Main area of business Traditional exports ADM Cocoa Mars Cocoa Sithe Oil palm Tropical Rubber Rubber Socfin Rubber Processing Watanmal Tomato paste and other Fludor Vegetable oil Cornfruit Fruit puree (mango) Retail Wal-Mart Shoprite Inputs Weinco Fertilizer/seed Freshco Seed Pioneer Seed Livestock Zambeef Investment funds Oppenheimer Thomas Wescott Commercial banks Rabobank Stanbic Nongovernmental AgDevCo organizations/ TechnoServe consultants Prorustica AECF GADCO Source: Authors 4 Growing Africa: Unlocking the Potential of Agribusiness Summary of Interviews Table A3.2: Agribusiness constraints, concerns, solutions, and interventions Solutions and interventions Constraint and concerns Description Solutions and interventions Energy Cost of state-provided energy, standby generators, National systems supplemented by private and connection to national grid. and mini-projects, private sector investments, alternative energy—when viable. Access to land and Freehold land is scarce, and land is usually Leases of different tenors; GADCO is water rights communal. Hard to get firm title, which can also comfortable with land arrangements serve as collateral for loans. Price of land and underpinned by revenue-sharing arrangement. ownership arrangement critical. Land for livestock Poultry, pigs, and cattle (to a lesser extent) Special zones set aside and transport systems farming offer good outgrower farming opportunities improved. but depend on appropriate (near cities but phytosanitary) sites. Budgetary Food imports comprise a major portion of SSA’s Import substitution and even exports may in constraints budgets. (Nigeria, after Egypt, is the world’s some cases be viable options. largest importer of American wheat.) Incentives and Uncompetitive, inconsistent. Reduced duties on Investors move to more favorable investment tariffs recurring inputs (seed, fertilizer, packaging) can climate countries. Countries adopt significantly influence profitability. harmonization of tariff codes (OHADA—the Organization for the Harmonization of Business Law in Africa/Organisation pour l’Harmonisation en Afrique du Droit des Affaires). Conflict between Tariffs, primarily import duties, are an important Clear calculation of the costs and benefits of duty-exempt source of revenues for many SSA countries. tariffs versus freer import. imports and Reducing them impairs national budgets. country revenues Human resources SSA workforce represents a potential comparative Master Meats (Nigeria and Ghana) has initiated advantage. In many countries, however, technical an extensive training program and cross-training training “has collapsed� or never really existed, with its headquarters. requiring retraining and human resource investment. Inadequate mechanization also can impair wage-adjusted productivity. Management Managers of global standards are hard to find and International recruitment, return of Diaspora resources expensive. Turnover is high. Reluctance of some (Global Careers–Africa); mentoring, career senior managers to live in rural, agricultural areas. development. National managers often relate better to workforce than to expatriates. Labor organization Balancing worker and company priorities. Unions Some FMCG companies in Lagos are adopting have reputation for overreaching in South Africa. incentive systems to improve efficiencies and Unions are gaining clout in parts of Nigeria. make unit costs more competitive. R&D, extension Additional resources needed to improve quality. Twinning with external partners, like Embrapa, services Facilities often outdated and poorly equipped. International Institute of Tropical Agriculture; Companies often called on to bear public good consolidating office to build critical mass. costs. (continued on next page) Annex 2: Interviews with 23 leading agribusiness players in Africa 5 Table A3.2: Agribusiness constraints, concerns, solutions, and interventions (continued) Solutions and interventions Constraint and concerns Description Solutions and interventions Nationalistic While larger trading and research blocs would be Industry advocacy organizations, for example governments more efficient and encourage more efficient and Borderless Alliance, are working alongside economic production units, most countries still want ECOWAS to encourage member countries to to have their national industries, research centers. execute freer trade measures. There are also positive signs pointing toward greater regionalization, however. Financing General inadequacy of project finance and working Seeking government and donor support; public- capital funding (equity and debt). Financial private partnerships; strong self-financing (when services (insurance products, weather insurance, available); innovative mobilization efforts. New risk management products) not freely available. products (Warehouse Receipts, weather-indexed High cost of debt. insurance) Bank liquidity hit hard during financial crisis. Central banks to assist with providing liquidity. Difficulty in meeting local and Basel II and III CenBank, and DFIs and donors to share risk capitalization requirements. Had to pull back on through co-lending and investing in bank equity. agricultural lending in favor of less risky sectors. Private shareholders to inject more capital. Nigeria’s bank consolidation of 2004–05. Rise of Valuation and perfecting agricultural assets as pan-African banks. collateral is commercially and legally difficult for commercial banks under current conditions. Supply chain Unpredictability and unreliable quality of supply Long-term planning is imperative. Holding of raw materials are huge challenges that impair inventories. This goes for operational inputs the efficient use of processing assets and cause (spare parts) as well. Efficient smallholder volatile raw material pricing. programs. High animal feed Competitively priced feed is a prerequisite for Improving supply and cost of grains, corn, cost sustainable, formal meat industry. cassava, and forage. Supporting Spare parts, trained technicians, packaging are Clustering, where possible. Sister companies industrial and often missing, especially in smaller markets and in the subregion. Having a strong procurement commercial remote areas. department on site or at headquarters. infrastructure Absence of local The efficient intermediary supply function often Encourage and enter into contracts with aggregators does not exist, especially in smaller markets. subcontractors, truckers; provide working capital to most trusted partners and cooperatives. Internal fraud and An issue particularly in the banking sector. Some Build trust; “culture change�; use technology theft commodity buyers travel to countryside with large to reduce “hands-on� transactions. Maximize amounts of cash. use of checks and direct deposits. E-banking. Domestic transfers. Cross-border transfer provided by some pan-African banks. Under-invoicing of A common form of corruption that makes imports Work with associations and best practice imports cheaper, penalizes the local formal sector, and partners to expose practice and increase deprives governments of revenue. governments’ awareness of cost. Corruption and Discourages the serious investor, especially those Larger, best-practice companies skip over fraud new to SSA. Encourages the unserious businesses countries or segments where corruption and who try to exploit it. non-compliance are endemic. (continued on next page) 6 Growing Africa: Unlocking the Potential of Agribusiness Table A3.2: Agribusiness constraints, concerns, solutions, and interventions (continued) Solutions and interventions Constraint and concerns Description Solutions and interventions Rule of law Investors and businesses seek assurance that Proprietary rights enforcement is critically agreements (political and commercial) will be important in new “smart� marketplace (such as upheld and proprietary rights will be enforced. market for seed). Certification and A protracted process often requiring duplication Differing views: Overly bureaucratic versus standards from country to country or even within same trade prudently following the rule of law and zone. Claims of bureaucracy and protection of protecting local farmers. ECOWAS seed law national industries and institutions. coming into practice. Finding a good As elsewhere, finding performing and trustworthy Invest with proven partners. Build partner partners (whether local or foreign) is a constant entrepreneurship. Credit checks and credit challenge that spans all levels, from supplier to bureau (e.g., now in Ghana). UEMOA credit equity. checks. Outdated Poor business practices, overstaffing, cronyism, Need for “change management,� new business “systems� and general inefficiencies are holdovers from the models, trial-and-error to see what works. mindset past and damage competitiveness in today’s International models more visible through travel global world. and through social media. Agricultural Agricultural loans by governments and Reeducate borrowers at all levels and impose a lending seen by development partners have often been seen, “credit culture�; improve legal enforcement. borrowers as especially by small-scale farmer borrowers, as a “gift� handout not to be repaid and without cost. Short time horizon Traditional traders typically look for a quick Training, reorientation, entrepreneurship investment return. The concept of longer-term, sustainable building; investment incentives to encourage orientation investment, returns on investment, and long-term capital investment. Some horizons increasing shareholder value needs to be expanding (e.g., private sector investment in promulgated. rubber in Côte d’Ivoire) Missing concept of Traditional companies in SSA(and elsewhere) Mind change, mentoring, employee stock shareholder value often seen as a source of employment, status, options, and profit sharing. Preparing for Initial cash flow; not a means to build shareholder Public Offerings on global and regional stock value over time. exchanges. Social, community, Are as important as historic financial and Develop and integrate from the start a clear and environmental management risks. Good community relations social and environmental strategy. Engage risks and buy-in critical to a company’s success and communities. can be time-consuming and expensive to build. City-based For agricultural projects in particular, work is in Clear communication and site visits. Delegating decision making the countryside, while decision making at the decision making to rural bank branches. governmental and banking level is in the city. Misalignment of perspectives. Long timelines Primary agriculture takes several years to Draw on donor or foundation (Bill and Melinda develop and turn profitable. The investor must Gates, Alliance for a Green Revolution in Africa), be prepared to accept this horizon’s impact on “patient capital,� and strong equity partners. returns. Storage facilities Lack of storage facilities can impair quality, Take over existing government warehouses, if forces quick sale at harvest when prices are available. Construct own. Use warrantage and lowest. Sale removes ability to use crop as loan warehouse receipt financing. collateral. (continued on next page) Annex 2: Interviews with 23 leading agribusiness players in Africa 7 Table A3.2: Agribusiness constraints, concerns, solutions, and interventions (continued) Solutions and interventions Constraint and concerns Description Solutions and interventions High cost of Long distances to interior markets, high fuel Continued emphasis on improving roads, using transport prices, poor road conditions, official quotas on technologies, compliance with ECOWAS (and national fleets, old fleets, delays and high freight other) rules and regulations; strengthen user charges imposed by monopolies (“mafias�) alliances (Borderless Alliance) and collect data result in among world’s highest charges. Rail for advocacy. Reduce high taxes on air freight. nonfunctional in most of Africa. Wienco-Ghana Some companies (e.g., Nestlé) resort to more claims that it costs about US$3 per ton-kilometer expensive but more sure sea freight. Some (in a 40-ton truck) to transport product in 50-kg governments again talking of rail networks. bags versus US$ 1/t-km in the EU. Zambeef says that its air freight between Lagos and Accra is US$1.80/kg. Slow movement Clearing goods through ports (imports and Maximize use of technology to control and of transport and exports) and crossing borders can be time- expedite documentation and track movement of goods consuming and subject to corruption. Interior goods (e.g., GPS). Training of customs officials checkpoints add to delays and cost. and transporters. Financing: Private • Showing increased interest in agribusiness. • Responsibility of all partners to carefully equity funds Proportion of global activity still low but weigh investors, investments, and structures. regionally high in absolute terms. • Concern that “glut� of capital may be chasing • Assist national investment agencies to assess too few viable projects, raising expectations, investments holistically. and creating a bubble, which if deflated • Use appropriate financing instruments, such will disillusion investors and cause investor as “social and patient capital.� pull-back. • Hard to guestimate, but as much as half of • Maintain good data on what investments investments in land assets may be speculative succeed/fail and why. land plays. • Caution over “silly money� or “black money.� • Many projects announced, fewer realized. Serious investors may become frustrated by delays, cost, and lack of local capacity to conclude deals. • Investors seem to key in on land and water assets with high potential for appreciation. Greenfield versus Startup greenfield projects cost more and Supporting replication and critical mass brownfield have greater risks than expanding or turning investment schemes. around existing operations. Successful existing operations have a clear advantage for expansion and repeat lending. Governments can Government agencies may set laws, develop Some government agencies control and sell be both regulators regulations, and establish certification standards seed and chemical inputs (fertilizer). and competitors for industries and then state-owned companies may compete against private sector suppliers. (continued on next page) 8 Growing Africa: Unlocking the Potential of Agribusiness Table A3.2: Agribusiness constraints, concerns, solutions, and interventions (continued) Solutions and interventions Constraint and concerns Description Solutions and interventions Subsidies At times in collaboration with donors, Companies claim that the fertilizer playing field governments offer subsidies for inputs (especially is not level in Ghana, to the long-term detriment fertilizer). This approach may boost production of the farmer. in short run but is often inefficient, distorts the market, and raises barriers to the private sector. The private sector argues that governments may not have the knowhow or inclination to buy and distribute what is best for a crop or locality. Foreign exchange Artificially supported or market-driven A common complaint with euro-tied F CFA rates fluctuation can distort markets for exports as well zone. Concerns also over “Dutch disease.� as inputs. Hedging opportunities are limited. Environmental Environmental protection agencies are not Strengthen or pool national resources. Global protection carrying out their mandates, willingly or due to partnerships. Upgraded laboratories. enforcement inadequate capacity. Unlicensed, generic, or compromised crop protection chemicals appear. Foreign political Claims by traditional investors that new players Age-old complaint, but neutral compliance is interference (such as the Chinese) do not have to play by warranted. in commercial local rules and are granted favored conditions negotiation due to aid and commercial interests being tied. Cost of Can add significantly to a project’s cost and Visionary companies embrace the importance environmental often not complied with uniformly, putting the of environmental and social sustainability to compliance complying companies at a cost disadvantage. communities and own businesses. Need to rebuild Some viable businesses have failed or Nigeria meat cattle industry has old stock, and it entire industries underperforming due to lack of maintenance or takes years to introduce and build new herds. modernization. Smallholder Often due to farmers’ side-selling or below See Table A3.5 on smallholders. schemes market pricing, schemes have often foundered. . Companies are trying new and more balanced models. Note: Can differ significantly from country to country. Annex 2: Interviews with 23 leading agribusiness players in Africa 9 Table A3.3: Agribusiness’ decision to invest: Company and institutional strategies Company/institutional strategies Opportunity Description Examples Familiarity Already an investor in SSA in related or unrelated Sithe Global (Blackstone) diversifying from with Africa and sector. Comfortable with risk and want to leverage Bujugali Power in Uganda to oil palm in West managing SSA project development, market knowledge, and Africa. Giant Vale, Brazil, integrating minerals, risk relationships and, in some cases, diversify. logistics, and grains in East Africa. Early entry Asia is over-crowded/saturated investor-wise. Higher Watanmal Group has gone from trading to or limited margins and less competition than in Asia. Latin processing and is now looking at backward alternative American has already entrenched local and foreign integration. destinations investors. Africa is the “new frontier.� Want to get in early and establish bulkheads. Emerging Modern, middle-class working women (living in GADCO, Watanmal, Finatrade expanding middle-class more modern housing) have less time to shop and to serve the rapidly growing market for market prepare food; prefer easy to prepared rice. Aspiring convenience food. middle class seeks to emulate. Fast food (formal and informal, from street stands to Chicken Republic) is taking off. Underserved This large market segment spends judiciously a large Watanmal Group and support services by bottom of percentage of its household income on staples like patient capital investors AgDevCo to its pyramid market tomato paste. Sales can be expanded through low clients. cost and efficient production and distribution of goods. Upward trend Demand pressure will likely continue to keep After falling back from 2008-09 spike, staple of commodity commodity prices firm, placing farmers in a stronger foods are again trending upwards. prices position to command higher farm gate prices. Negotiate With good value proposition, companies able, at Sithe negotiated 85,000 ha of government head-on with times, to negotiate favorable land concessions land for oil palm development in Cameroon. governments and investment incentives (such as reduced duties, Fiscal tax break helped to balance returns income tax holidays). expectations of investors. Fundamentals In selecting subsectors and locations, critical to put Socfin a proven oil palm and rubber investor fundamentals first (technical and market). Incentives based on sound intrinsics. may sway the final decision but will not compensate for the wrong basics. Economies of Seek situation for its specific product where company ADM, Tropical Rubber Côte d’Ivoire. Zambeef scale can be regionally and export competitive, through can compete against imported beef in Nigeria. reasonable costs of production, capacity utilization and efficient transport. Value chain Recognizing that it is hard to achieve risk-adjusted Companies in SSA are developing its own approach return on investment for primary agriculture, brand and teaming up with established companies—for this and other strategic reasons— distributors to exploit full value chain, look to a longer, integrated value chain, stopping Finatrade. where gains tail off or creating alliances. Share the risk, Work with partners that can help mitigate risks and Astute investors try to shield themselves from partnerships bring clout to the table, whether financial, political, “political� risk by working with IFC, DEG, technical, operational, donor, marketing, or so on. African Development Bank, etc. Public-private partnerships can help insulate risk. (continued on next page) 10 Growing Africa: Unlocking the Potential of Agribusiness Table A3.3: Agribusiness’ decision to invest: Company and institutional strategies (continued) Company/institutional strategies Opportunity Description Examples Spreading risk Political, regulatory, and commercial markets have Socfin, among others, invests in several historically been volatile. adjoining countries to manage country risk. Avoids bunching and over-exposure. Small and An NGO guarantee fund echoes the view that AECF Africa has successfully launched medium needs far exceed supply, which offers promising 11 funding competitions in Africa. Social enterprise opportunities. However, this is offset by its own investors (e.g., Root Capital, Acumen Fund, (SME) funding internal processing and supervising capacity. ResponSibility) making positive impacts on demand SME investment. Turnaround Well-established but poorly managed companies Several national commodity-based companies opportunities in today’s more competitive and liberalizing African and banks were “privatized� in the 1990s and landscape can offer investors upside turnaround and 2000s, including National Microfinance Bank, asset appreciation opportunities. Tanzania and Société d’Investissement pour l’Agriculture Tropicale, West Africa. Improve In East Africa, only 30–40% of farmers use hybrid Pioneer Seed has recently organized an Africa agricultural seed. In West Africa, hybrid seed use is generally Regional Leadership Team to spearhead yields (seed) lower. Substantial opportunities for wide benefit. action. Serve local Capitalizing on SSA’s need for imported foodstuffs, Finatrade, one of Ghana’s largest rice and markets with some companies are pursuing a strategy to capture pasta importers, is now supporting rice imports while market share with imports and then transition to production and manufacturing own pasta. transitioning to backward and forward integration. Integrations are local processing also politically well accepted by governments. Access to Lack of use or the unavailability of chemical inputs Comafruit, Mali is exporting organic mango organic fruits has resulted in “green� products with a budding puree. Burkina is increasing production of and vegetables market niche in more advanced countries. organic cotton. Investment Investors’ decisions may be influenced by positive Wilmar, Ghana claims that certificates of origin incentives (or negative, inconsistent) incentives. “Free-trade are not always respected among ECOWAS zones,� for one, impose “domestic� sales restrictions countries. that some companies find overly burdensome. Economic Recognizing its importance as a bellwether for future The most visionary companies and banks and social investment, companies and banks use corporate espouse, among others, the IFC’s Economic sustainability responsibility as a way to distinguish themselves, and Social Performance Standards and build trust, and grow corporate value. Equator Principles. Annex 2: Interviews with 23 leading agribusiness players in Africa 11 Table A3.4: Agribusiness’ decision to invest: Sub-Saharan Africa macro advantages SSA macro advantages Opportunities Description Examples Growing Expanded demand and market for food within SSA. General. populations Increased urbanization creating markets. Changing diets and eating habits (such as more rice and fast foods), emerging or aspiring middle class. Changing shopping patterns (supermarkets, home refrigeration). One out of six world citizens in 2050 will be SSA. Global demand Although non-SSA population growth is leveling off or even General. for food and declining, unused arable is limited outside Africa. Current high industrial yields can be increased only marginally. Domestic concerns agriculture over environmental pressure and, conversely, looking for products greener energy (such as biofuels). Diets and eating habits transforming (more red meat, for example). Looking to SSA for land and agricultural output (such as food, rubber, cotton, processed foods). Unique product Unique or important producer on the world scene (particularly ADM and Mars procure roughly 60 offerings cocoa beans, shea butter, cashews, sesame, cola nuts, ginger, percent of cocoa needs from West moringa, jojoba, niebé, and others), both formal and informal Africa. “Exotic� oils and products are sectors. generally lighter, and thus cheaper per return, to transport than, say, bulk cereals. Improving country General trend toward democracy and away from military rule Trends are generally favorable (e.g., stability and socialist governments (with notable exceptions). Fewer Liberia, Sierra Leone) flashpoints than five years ago. Business SSA continues to populate the bottom third of Doing Mauritius, Kenya, Ghana, Burkina, environment Business index, but with several stellar standouts and Mali, Senegal, and others. perception that several countries are on the move forward. New Several governments have been recognized for taking a Kenya, Ghana, Nigeria, governmental more enlightened view of agribusiness, its contribution Comprehensive Africa Agriculture thinking and to development, and cooperation with the private sector. Development Programme, policies Embracing new models. Assigning new professional talent to Mozambique. key positions in agriculture. Land availability Unused arable land. Africa accounts for 20% of world’s arable Per international seed producers. and upside yield land but only 8% of food production. The United States maize potential farmer produces on average 9 t/ha. In SSA, the average is around 1.5 t/ha. Upside opportunities. New industries Quest for biofuels (still being economically and Depends on available land and water environmentally proven) and organic fruit, vegetables, cotton, and localized cost structures. can offer new opportunities for SSA agribusiness. Water Major river systems traverse the continent (16 rivers over 1,000 With caveat of climate change as a km). Abundant rainfall in some tropical areas. Opportunities growing risk. Challenge to husband for improved management and irrigation. and use water most efficiently. Labor force As population growth levels off and wages rise in emerging Offers opportunities for labor- nations, SSA offers an abundant, willing, relatively low-wage intensive crops and industries. labor force, but one that requires training. (continued on next page) 12 Growing Africa: Unlocking the Potential of Agribusiness Table A3.4: Agribusiness’ decision to invest: Sub-Saharan Africa macro advantages (continued) SSA macro advantages Opportunities Description Examples Local raw Building off of local supply of raw materials, such as Fludor-Benin is producing vegetable materials vegetable oils (oil palm, cottonseed, groundnut oil). Process oil from cottonseed and soybeans. and distribute to domestic and regional markets. Using bran for livestock feed. Import While local producers/processors may not be as cost efficient A small but good example is the substitution, as foreign producers, freight times and costs can afford them substitution of local soy for imported natural protection natural protection. barley used by breweries. Improving While much of SSA is way behind or catching up, freight Nestlé can theoretically ship by road infrastructure and systems (road, rail) are improving. Air service internationally from Accra to Lagos in one day; but business travel and within the continent has improved. Sea freight improving threat of delays and informal charges in East Africa. Lodging offering is generally better and more remains. diversified. Communications, Thanks to cell phones and other improved communication Commodity producers and traders; media technologies, transfers of commodity and technical smallholder farmers. information and money are now widely available. Mass media has helped open the world to Africa, increasing awareness and expectations. Strategic export As shipping lanes and frequency improve, Eastern and Mozambique’s pineapples are now location Southern Africa will increase exports to India, the Persian shipped to India and Southeast Asia. Gulf, and Southeast Asia in addition to West Africa’s Comafruit, Mali sells through its exports to Western Europe, North America, and Brazil. French joint venture partner. Transitional As the model for agriculture shifts from being import- Partnership role to be played by period dependent to self-sufficient and export-competitive private sector, governments, donors, agriculture, SSA producers need temporary support in form nongovernmental organizations. of incentives, subsidies, market assistance, and low-cost financing. Customs unions, Several free trade areas and common tariffs theoretically East African Community, ECOWAS, OHADA offer larger markets, but execution and enforcement are UEMOA, Commission de la checkered. Opportunities for improvement. However, Communauté Economique et praises for OHADA’s favorable impact on straightening and Monetaire de l’Afrique Centrale, harmonizing countries’ legal systems and practices. SADC. New strategic New national investors are looking to SSA, and SSA is GADCO, Embrapa, Wilmar, Socfin, country seeking out new partners. Brazil has become a partner Sinochem (rubber), Sime Darby, and partnerships of choice. India has a new wave of more technically others. and globally astute investors. Indonesia is building off its expertise in tropical agriculture. China is looking to strengthen supply chains and markets for low-cost goods and implements. Opportunities Boosting yields through better inputs will have a huge Opportunity to improve the to “make a impact on communities’ and countries’ food supply and production of thousands of maize difference� while economic growth. farmers. expanding profits Annex 2: Interviews with 23 leading agribusiness players in Africa 13 Table A3.5: Observations related to smallholders Opportunities and constraints as viewed by investors Situation Description Commentary Supply chain and For cocoa, supply is the critical problem, Challenge is to expand smallholder networks and predictability particularly now, given massive investment in under-represented cooperatives. processing plants and the economic imperative to keep them operating. Outgrower Works better with industrial crops like oil palm, Association with processors and marketers may programs rubber, and cotton than with food crops (not a enhance relationship. unanimous view). Lower income In dealing with smallholders, important to May need immediate cash and also susceptible stratum recognize that they may be among the poorest, to outside pressures. for whom a few cents can make a big difference. Side-selling Claims that contracted smallholders will sell for Nucleus estates looking for new models. a few cents more. Will sell to rogue buyers to Socfin’s new rubber plant, SCC in Aboisso RCI, avoid repayment of advances by nucleus estates is 30% owned by smallholders. Cash or direct (who may also be retaining funds to reimburse deposit systems (Ghana Oil Palm Development expenses or pay tenant famer landlords). Company), revenue sharing (GADCO). Quality and Nucleuses point to need, especially for food Networks need to be well structured and trained. traceability crops, to maintain high quality for consumer and ensure traceability. Balance between The optimum balance depends on crops Companies and smallholders differ significantly nucleus and and local situation. The nucleus estate and over what is the optimum balance. Rule of thumb smallholder smallholders each want to maintain their seems to be 60–70% own production; 30–40% production “bargaining power.� The ideal is a “win-win,� smallholder. where each leverages off the other. Cost of raw A delicate calculation, which has to include Different parties claim that nucleus estates— material the cost of land, labor, and time to commercial or smallholders—have the lowest cost of harvest. production, adjusted for upfront costs. Pricing of supply Pricing is always an issue. Smallholders’ prices Transparent and often formula-driven pricing can be more expensive than nucleus’, especially mechanism to permit margins to both nucleus when market prices are high. and smallholders under different market scenario. Size of Differs by crop and activity, but micro holdings A gravitation toward “block� farms, co-ops (aka smallholders’ plot (under, say, 1 ha) do not seem conducive to “associations�), lead farmers. introducing better farming practices. Community buy-in Community buy-in is socially and “Sharing the pie� an important way to build buy- and trust developmentally good, and good business. in, trust, and sustainability. Social risk is a major business risk. Management Managing and administrating a successful Critical to have respected national staff, good challenges smallholder program is time, money and information and communication systems, management intensive. extension value-added. Enforceability Non-delivery by smallholders or nonpurchase by Nucleus buyers must be held to their nucleus buyers will disrupt. commitment to buy, and to buy for an acceptable price. Local courts and law enforcement to be involved. (continued on next page) 14 Growing Africa: Unlocking the Potential of Agribusiness Table A3.5: Observations related to smallholders (continued) Opportunities and constraints as viewed by investors Situation Description Commentary Output Smallholder and contractor schemes do not Helps all parties leverage and share benefits. involve only the input side. They can and do provide distribution and off-plantation services. Farmer-based Should be an important partner in the link to Recognition to build capacity and fair play. organizations and aggregate and store harvests; upgrade skills, cooperatives technologies, inputs; and represent farmers’ interests. Development Recognizing the importance of supporting and Expanding public-private partnerships. partner support increasing productivity of smallholders, donors take an interest in schemes. Financing Substantial working and seasonal financing To consider shared risk-taking among estates, requirements of smallholders. Lenders are smallholders, commercial lenders, governments, reluctant to lend directly to smallholders. and donors. Using harvests as collateral for Nucleus estates resist taking on smallholders’ advances (e.g., “warrantage� schemes). obligations. Aggregators and Production is only one aspect. Getting the Fresh oil palm fruits start to deteriorate after 48 logistics product swiftly and safely to the buyer and hours. Aggregators may expedite collection and processor is critical. delivery. Livestock Contract livestock farming can work well for In Nigeria, one-third of Zambeef’s pork supply outgrowing pork and poultry. Contract and feedlots not is procured through contract farming. Broiler commonly used in West Africa for cattle and farming is also poised to expand, if acceptable small ruminants. site can be found. Interprofessions Private sector and locally-led, such confluence of Tropical Rubber Côte d’Ivoire is a lead member of interests can play a practical role in promoting the country’s rubber interprofession. industries through providing planting materials, fertilizers and crop protection inputs, agricultural extension, marketing, and advocacy.