AGRIBUSINESS LINKAGESWith studies cases experienced

by GTFS/RAF/391/ITA

CONTENT OF THE PRESENTATION

1. GTFS/RAF/391/ITA

2. Benefits of linkages

3. Linkages established under GTFS/RAF/391/ITA project

4. Lessons learnt : Factors influencing the strenght of the link

5. Constraints = Challenges for Phase II

GTFS/RAF/391/ITA

Phase I: Support value chain planning

Phase II. Implementation of the program

2.1. Increase production and productivity for value chain actors

2.2. Upgrade marketing system & increase market access

2.3. Promote value added activities

2.4. Support cross border trade

BENEFITS OF LINKAGES

Equitable and efficient relationship between actors are developedand reinforced

Farmers move beyond subsistence farming and improve livelihoods

Adding value in agricultural sectors

Creation of viable MSMEs (employment, increased incomes,increased local development)

Better access to market, reduction of risks associated with prices,access to information, latest farming technology, crucialagricultural inputs and credits

Assured raw material supplies, better control over the productionsystem in order to comply with set standards of relevance toaccessing markets.

Better management, planning and marketing by mastering ofproduction schedules based on sure supplies at definite prices.

LINKAGES ESTABLISHED UNDER GTFS/RAF/391/ITA PROJECT

Mainly purchasing arrangements based on ½ formal contracts/MOU (signed but no binding) defining prices per period, deliverymodalities (periodicity and coverage of transaction costs),payment arrangements, quality of product, …

When there is no MOU or ½ formal contracts, ad hoc spotarrangements are used and some time they lats for years.

Services provision contracts reported between MLI and actors,between National Seed Potato producer’s association (UNSPPA)and 43 Seed Potato producers in Kabale-kisoro (Uganda)

LINKAGES ESTABLISHED IN BURUNDI

1. Milk: 1 cooperative (AYERA) : 3 farmer associations composed of 100 breeders (6000 l per month) linked to a rural Cheese factory “Fromagerie Saint Ferdinand” (600 kg of cheeses per month)

2. Passion fruit: 3 cooperatives (Banga, Ruganza, Kabuye) : 27 farmer associations

composed of 800 passion fruit growers (350 tons per year) linked to (now this link is broken, cooperatives are directly linked to Marex)

1 association of passion fruit local trader (ECM) composed of 15 members linked to

1 association of passion fruit exporters (Marex) composed of 5 members – 250 tons exported par year (72% of the production)

1 association of passion fruit juice producers (TRANSJUMA) composed of 10 members (1000 l of concentrated juice per month) linked to supermarkets in Bujubmura

3. Pineapple: 1 cooperative (Akayanzwe) of 5 farmer associationscomposed of 150 pineapple growers linked to “Burasira agroprocessing center” (1000 l of pineapple liquor –Burasine- peryear)

4. Rice: 3 cooperatives (Kabuyenge, Marangara, Gikuyo) of 15 farmerassociations composed of 1500 rice growers (750 tons per year)linked to 1 association of rice traders (Dusangire). This link is notreally operational because of the nature of the product and thehigh speculation around it. The project has facilitatedestablishment of a strong link between Dusangire andTwitezimbere which can evolve in a serious enterprise ifnegotiations with local authorities conclude to the attribution of aground to built a medium size rice factory in the new industrialarea of Ngozi Town.

LINKAGES ESTABLISHED IN MALAWI

• Cassava producers with community level traders

• Processors to be linked with Banks for equipment provision (cost sharing principle : 50% trough a credit and 50% from the project.

LINKAGES ESTABLISHED IN RWANDA

• NDONGOZI, COVMB, UMWETE and GATSIBO Irish potatoes &Maize cooperatives linked to market in Kigali. Farmers sell to

cooperatives that in turn resell to the Kigali buyers.

• Through seasonal agreements (still informal), a wholesaleinputs supplier (Mr. John from the nearby Musanze town)advances the 3 grower cooperatives with fertilizers at theplanting season. The cooperatives reimburse later on afterthe sale of the harvests.

• The IAKIB milk production and sale cooperative continued itssupplies manly to the Kigali clients. The cooperative is stillnegotiating contract with the INYANGE milk plant that, if allthe hygiene and quality requirements met, could buy theirmilk at a higher price than now. Next linkage will be establishedwith a cheese factory ready to start in the locality

• Cassava growers association linked to a rural cassavafactory –CATM- itself linked with an exporter – COCAM-(see pictures) Quality cassava market opportunities havealready been identified on the Huye, Muhanga and Kigalitown markets. Also, a private exporter has promised to buythe cassava products if the export quality and normsrequirements are met by the producer cooperative.

• Passion fruit growers linked to Nziza Fruits Factory

• Pineapple grower association COCANYA linked withpineapple traders association COCOANYA

LINKAGES ESTABLISHED IN UGANDA

Dairy value chain

Rubuguri Dairy Farmers’ Association (128 farmers in Kisoro, 6000 – 800 l per week) linked to Birunga Dairy Corporation in the same district .

An MoU signed involving

a government agency –NAADS- that offers extension services to farmers & deals with dairy husbandry issues ,

SACCO for loans to purchase the truck on which the milk tanker (50%)

FAO for technical assistance , supply a milk cooler at the collection centre, a milk tanker (50%) to facilitate transportation of the milk to the plant

Honey value chain

6 Honey Marketing associations (BBDA) linked to Honey Collection center about to be erected to facilitate the refining . BBDA has already an MOU signed with a supermarket to supply a few cartons of honey on a monthly basis

Seed Potato VC:• 43 Seed Potato producers linked to a National Seed

Potato producer’s association (UNSPPA) so that they are recognized as trained & reliable seed producers.

Ware Potato VC:• Kamuganguzi Sub County irish potato Association

linked to financial institutions and NANDOs in Kampala (12 tons per month )

• MoU signed between Muko Expanded Potato Growers’ Association and an input dealer Mwongyera & Sons.

• 43 Seed Potato producers directly linked to to seed producers that are reliable for clean seed, and subsequently at more affordable prices as the seed production increases in the area

LINKAGES WITH MLI

Groups supported by the project access loans trough followingArrangements1. First of all farmers are associated in operational FO (associations or

cooperatives)2. They are linked to large traders/buyers or processor3. Commercialization pass trough cooperatives structures4. Payment are controlled and pass trough account bank5. Use of 4-ple MOU between FO, Buyer, FAO and MLI.6. FO and Buyer commit to cooperate trough a purchassing contract

arrangement (1/2 formal contract clarifying a certain number of things:price, delivery modalities, periodicity, quality of the product…) and tooperate in a transparency way

7. FAO commit to pursue technical assistance mainly in management andaccountancy

8. MLI commits to build capacity in business planning, credit functioning,entrepreunership

9. (warranting system)

CREDITS FACILITATED UNDER THE PROJECT

• Burundi: 260 000 $ for the two last year.• Rwanda:• Uganda:

• Thanks to facilities and incentives offered to FO, case of rice cooperative : – 2008: 0 tons– 2009: 25 tons – 2010: 63 tons and Expected for 2010: 300 tons (extension

of groups, structures well organized, population well informed)

– Access to loans and other facilities will follow this trend.

LESSONS LEARNT

(FACTORS INFLUENCING THE STRENGHT OF THE LINK)

1. Legal validity of the contractsa) Ad hoc arrangements, b) ½ Informal contracts (MOU signed or not), c)

Formal signed contracts , d) short term , long term contracts

2. Coping with price determination issue while facilitating contracting (the tough moment and the more confusing for farmers)

immediately result in high price )= main expectation of FO. Benefits associated to linkages as expressed early are ignored. So there is need of information and skills development, creation of awareness for long vision and demonstrate real incentives & positive results from contracting,

If possible calculation of average price for a reasonable period and determine the price accordingly

Price can be fixed on annual basis and then after balance sheet report possibility to give bonuses to farmers when markets perform better than expected.

3. Psycho socio environmental factors

Mutual interest in forming and maintaining agreements (PF, the partner is the solution)

Appropriateness of the process with environmental situation of contractors especially Contractors’ behavior (patterns, social behavior, historical facts, …) : opportunistic behavior of the contracting parties, Mistrust to commit and adhere to agreements combined with a perceived loss of autonomy and feelings of exploitation are common.

Good preparation and awareness of difficulties for sustainable enforcement (at the beginning mistrust is the law, trust is exception then progressively situation changes): capacity of actor to patient and overcome challenges (contracts details can not foresee all obstacles: Weekly meetings)

Capacity of farmers to organize / strength of farmer’s organizations

Configuring members with market requirements including training,extension, technology acquisition, provision & supplying agriculturalinputs, credit financing, provision of transport and storage facilities

co-coordinating harvesting-delivery schedules & maintaining recordsand handling majority of post harvest functions

Play an instrumental role to raise funds & defend farmers interests

When FO operate transparent financial accounting they create trustbetween the executives of the cooperatives and their members whothen commit more to contribute to the cooperative for itsdevelopment and better enforcement of contracts.

Strong FO are able to establish linkages with input suppliers, banks,and a processing company

Initiator of the Link: its strategy and role

1. Government (Direct role, indirect / regulatory role)

2. Project (here acting as Government partner )

3. NGO (facilitation)

4. Agribusinesses Company / Private agribusiness enterprises / large buyers

5. Farmers / Farmers' organizations

Economic factors Nature of Product /Commodity Characteristics or processes involved :

perish ability, carful handling, labour intensive, high level of intensification, no alternative market, high competition, market dynamic, fluctuating prices

Importance of Start-up Costs for a linkage (high in nontraditional crops, requires set of facilities including linkages to MLI, trainings, technical assistance, doing certain tasks on behalf of other party, critical equipments and infrastructures, …). Good evaluation of this is essential

Importance of Transaction Costs (start-up cost, growing costs, harvesting-delivery costs and administration costs. charging back differential transaction cost to the small-scale grower by using activity based costing systems to identify the smallholders’ incremental use of company resources. (PF, rice, milk with the new system on the stores)

Constraints to market-based agriculture development

• Weak production

• Prevailing of individual behavior for farmers reinforcing themarginalization and exploitation

• Conservative spirit / Mistrust to commit and adhere toagreements.

• Small private operators who disturb the effort to modernizethe system / process while no providing any services orfacilities ( PF, Rice).

• Lack of financial resources to expand activities

• Reluctance of farmers to re-invest their income

• Tiny agro processing units to be linked with due to weak industrialization

• Raw Material Procurement not easy

• Quality Constraints and competitiveness of products

• Transportation failure: not easy to supply on time

• Educational institutions often have insufficient understanding of the needs of farmers and agribusiness, and lack both the resources and commercial awareness to implement practical programs of support.

• Cohabitation with different approach projects

• Extension services often have inadequately resources.

• Limited Availability of Inputs

• High costs of raw materials in both, farming and processing, lead to a low profitability in the agricultural and business sector. Inputs necessary for adding value to primary products are often imported while local intermediary goods suppliers cannot compete on price and quality of imports.

• Restricted Market Information

Sensibilisation, mobilisation en vue de la formation des groupes commerciaux viables

Formation des groupes viables

Facilitation formulation des plans d’actions et des business plans (vue des participants après une session)

Formation à la gestion des opérations sur les hangars sur base des outils conçus a cette fin

Facilitation des linkages et signature des contrats

Formation, assistance technique

Formation action

Production de 120 000 Plants de maracuja

Aspect avant le projet

Aspect actuel

Eparpillement de la production vendue avant le projet

Hangar de commercialisation donné par le projet

Une pause après signature de contrat éleveurs - FSF

Pause « launch » après débat houleux sur le prix du lait

Fromagerie avant réhabilitation

Distribution kit pour le contrôle de qualité du lait

Vieille presse qui a été changée par une plus moderne

Comités des associations des producteurs d’ananas

Vue des plantations sur 5 ha

Petite réception après signature des contrats

Liqueur des ananas

Abakeburwabakumva

Démonstration semis à la ligne (formateurs: paysans venus d’Imbo)

Modèle de camps bien plané (60 plots modèles)

Session FFS

Usine de production de farine de manioc de qualité

Aire de séchage du manioc fermenté

Cooler pour lait collecté auprès des fermiers

Camion citerne (du centre précédent à la laiterie)