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INCLUSIVE BUSINESSES IN AGRICULTURE
Ward Anseeuw & Wytske Chamberlain
University of Pretoria / CIRAD
Outline
IBs Definitions of IBs
Contextualising IBs Drivers behind IBM South Africa
Assessing IBs Instruments of inclusiveness Dimensions of inclusiveness
Transversal analyses/Discussion/Conclusion
What is an Inclusive Business?
A profit oriented partnership between a commercial agribusiness and low-income communities or individual, in which the low-income community or individual is integrated in the commercial agricultural supply chain as suppliers of land, produce or value-sharing employment with a particular aim to develop its beneficiaries.
What is an Inclusive Business? Inclusion of smallholders: production of primary
crops, excluding purely agro-processing initiatives and consumers Beneficiaries - Suppliers of land, produce or
(value-sharing - see hereafter) employment. Partnerships – an essential aspect often lacking
Arrangements for sharing ownership, decision-making, risk and reward between smallholders and agribusinesses or large commercial farms.
Inclusive: Collaborative relationship, but also fair and equitable terms
Pure employment contracts are not considered (unless linked to other instruments - equity sharing, added value distribution mechanisms, etc.
What is an Inclusive Business?Not to be confused with Inclusive growth
Microeconomic dimension captures the importance of structural transformation
Macro dimensions of growth and development referring to changes in economic aggregates such as the country’s gross national product (GNP) or gross domestic product (GDP), etc.
Inclusive development Macro-economic trends Integrates principles of human rights, such as
participation, non-discrimination and accountability, and social safety nets, public services and fiscal policy
Cross road of several observations
Rush for land and renewed interest in agriculture
Impacts must be nuanced… …especially on smallholder farmers
Call for alternative models Non land based investments Equitable/sustainable
Linking smallholders to large investments
Cross road of several observations The “modernization” of markets
Dismantling of international commodity agreements and the Restructured markets: Increasingly vertically integrated
markets Rise of supermarkets and closed value-chains in developing
countries (Swinnen, 2007). Industrialization and globalization of agriculture
Tighter alignment of supply chains and emergence of fewer larger farms and agribusinesses (Reardon et al., 2003)
Exclusion small-scale and emerging farmers from mainstream agro-food markets (Louw et al., 2008). Smallholder and emerging farmers lack economies of scale Limited access to inputs/technology …to respond to competition and to norms
Cross road of several observations Basic inclusive instruments, such as contract
farming, are not a panacea Positives: Improve production, access to services,
access to resources, participate in competitive markets subject to strict standards
Negatives: very few smallholder contract farmers results mitigated (dependent on internal and external
factors) transfer of production management and decision-making
processes to agribusinesses
The need of something more structured/inclusive
South Africa – Similar predecessor Extreme liberalization of agricultural and agri-
food markets, Consumer-driven and vertically integrated
20 years of land reform, segregated configuration persistent Status quo of the smallholder agricultural
activities - high rate of failure of many of the land reform projects
Policy and governance are often highlighted Also market-related (lack of access to markets),
managerial (financial management of commercial enterprises), and institutional aspects (not recognized ownership structures, lack of access to credit)
Call for IBs
South Africa – Similar predecessor Longer term engagement of large
agricultural enterprises (agribusiness & commercial farmers)
Well-developed business and financial instruments
Large number of cases, some with track record
South Africa as an « ideal » case study, to learn from
Why Inclusive Business Models?Drivers
Linking smallholders to large agri-businesses and commercial farm enterprises
Towards a new paradigm 60-80’ - State driven agriculture 80 – 2000’- Private agriculture, in a
liberalised environment Present - Linking small to big
Why Inclusive Business Models?Drivers for stakeholders
Agribusiness Access to land/crops Corporate Social Responsibility Favourable financing (government/DFI)
Beneficiaries Access to knowledge, market, financing,
inputs Government support/guidelines
Dimensions of inclusiveness
Internal inclusiveness Ownership: land, assets, produce Voice: decision taking power Risk: financial, production Benefits: financial, social
External inclusiveness / linkages (Local Economic Development potential) Input Market Labour
Scalability Internal growth potential Sustainability Replicability
Instruments of inclusiveness
Instrument DescriptionBeneficiary-owned organization
Group of farmers or community members (beneficiaries) organized in a (commercial) collective with a common goal. Beneficiaries can be active farmers, passive landholders, workers or a community association.
Contracts Beneficiary growing crops for commercial agribusiness based on pre-signed agreement
Mentorship (Temporary) assistance to emerging farmers (beneficiaries) to overcome lack of knowledge on agricultural and business practices and market access.
Lease Agreement between land holder(s) (beneficiary) and commercial entity for the commercial entity to operate on the beneficiary’s land. Payment based on benefit-sharing clause and/or fixed amount.
Equity Commercial entity with shared ownership between beneficiary (community or employees) and commercial agribusiness.
Beneficiary owned organization
Ownership Potentially high
Voice – Increases through beneficiary organization Negotiation power dependent on skills and internal
organisation Risk
External low - Always shared amongst beneficiaries Internal high - Grant funding required, positive impact on risk
Benefits Considerable, although often to be shared Take time to materialise
Instrument Beneficiaries Commercial partnerBeneficiary-owned organization
• Scale economies• Improved market access /
bargaining power• Risk sharing
• Lower transaction costs
Cooperative structures
Mentorship
Ownership High – own land Produce belongs to beneficiary
Voice Should be strong, but mentor often in charge
Risk Risks remains with farmer
Benefits Enables increase in production and skills Market access
Instrument Beneficiaries Commercial partnerMentorship • Access to knowledge,
finance and market• Government policies /
financing• Corporate Social
Responsibility
Mentorships
Contract
Ownership Shift in ownership - Beneficiary does not own produce
Voice Dependent on the agreement with commercial partner
Risk Shared with commercial partner Limited through support from commercial partner
Benefits Considerable due to market opportunity
Instrument Beneficiaries Commercial partnerContract • Access to inputs,
knowledge, finance and (input/output) market
• Access to produce / land
Contract farming Outgrower
schemes
Lease
Ownership Land owned by beneficiary as leaseholder, no control over production
Voice Through lease, no control over what happens to land
Risk Considerable for commercial partner operating in “hostile” community Can be shared in case of equity in operating company
Benefits Limited – although can share in produce/profit as rental fee …but at little to no effort
Instrument Beneficiaries Commercial partnerLease • Income from land with
limited effort• Possible profit sharing
• Access to land
Lease-management
Equity
Ownership Is essence of equity instrument Always in name of beneficiary-owned organization
Voice Depends on agreement Needs time and support from commercial partner
Risk Through ownership, beneficiaries are exposed to operational
risk Equity funded through grants, no individual financial risk
Benefits Considerable: skills, economic, usually employment But can take long time to materialise
Instrument Beneficiaries Commercial partnerEquity • Access to knowledge,
finance and market• Profit sharing
• Access to input / land• Government policies /
financing
Joint ventures Equity sharing
Instruments/Dimensions – in theory
Ownership
Voice
Reward
Risk 0
20
40
60
80
100
Beneficiary owned organization Mentorship
Contract farming Lease
Equity
In reality:- Combination of instruments- To overcome obstacles
The cases
Situated across the countries: subject to different provincial policies
Crops include staples (maize), cash crops (vegetables/sugar), orchards (fruit), dairy and cattle farming and forestry
Production for both domestic and export market
All cases implemented after 2002
Diverse outcomes
Complex models Combining numerous instruments. Over time,
instruments change within same project (f.e. TechnoServe/Massmart where TS steps out, mentorship changes to equity in pack house)
Diverse outcomes, even for same instrument It is not the instrument itself that only
determines the inclusiveness and the outcomes Leader, drivers and project circumstances play
role
Diverse outcomes
BMBBenoni
Mphiwe Siyalima
Winterveld Farmers Union
Technoserve/massmart
Tongaat SugarMoletele Richmond
Mondi Kranskop
Moletele New Dawn
Seven Stars
Gxulu Berries
0
2
4
Ownership
Ownership
BMBBenoni
Mphiwe Siyalima
Winterveld Farmers Union
Technoserve/massmart
Tongaat SugarMoletele Richmond
Mondi Kranskop
Moletele New Dawn
Seven Stars
Gxulu Berries
0
2
4
Voice
Voice
BMBBenoni
Mphiwe Siyalima
Winterveld Farmers Union
Technoserve/massmart
Tongaat SugarMoletele Richmond
Mondi Kranskop
Moletele New Dawn
Seven Stars
Gxulu Berries
0
2
4
Risk
Risk
BMBBenoni
Mphiwe Siyalima
Winterveld Farmers Union
Technoserve/massmart
Tongaat SugarMoletele Richmond
Mondi Kranskop
Moletele New Dawn
Seven Stars
Gxulu Berries
0
2
4
Benefits
Benefits
Outcomes – Internal inclusiveness
Ownership …. but no control Often rent-seekers
Voice …. Low, if no capacitation, empowerment, control Skills divide commercial partner / beneficiary
makes true empowerment in short time frame unrealistic
Risk … reduced, but …
Benefits (financial/social) Low
Outcomes – External inclusiveness External inclusiveness
Input/Market/Labour – on project basis, more nuanced on beneficiary basis
Linkages to Local Economic Development low Scalability
Internal growth potential (especially smaller projects)
Sustainability questionable Government support necessary… but dependency,
inefficiency Low replicability
Complexity Dependency on driver individuals
Common conditions Ownership – land, produce!
Although not a a panacea, positive impact Power-sharing
Equity Decision-making entities
Effective capacitation Combination of ownership, empowerment and voice
The importance of third parties … with ownership Separation/balancing of power control Financing to kick-start and overcome lack of finance of
beneficiaries
Common conditions
Necessary support IBs alone, not alternative/panacea
Realistic IBs Financial sustainability Community trap (limited skills transfer,
expectations beneficiaries, additional risks for partners)
Transparency IBs – between partners Within partners (community/traditional
leadership)
Towards genuine transformation? Avoiding large-scale land acquisitions
Marginalising local farmers, particularly smallholders
IBs = alternative for large-scale land acquisitions Can lead to significant results, especially on
project basis Results depend on specific conditions Different inclusive instruments allow overcome
certain obstacles
Towards genuine transformation? Ibs - Project basis
Specific impact Impact marginal (per project / overall)
Shift towards corporate farming/value-chains If not through ownership, it is through control
No long term reflection on structural agrarian transformation Danger of approving IBs as sole model
What about endogenous growth of farmers???? I think it is all about finding the farmer… …but also about giving farmers opportunities