Improving the productivity of smallholder farmers through private sector collaboration Lessons learned from 15 projects delivering innovative input, production and market-access solutions to small farmers April 29th, Thun, Switzerland
Many productivity enhancing products and practices exist, that could change the life of small-scale farmers sustainably 2
…but they struggle to reach widespread and consistent adoption Unpredictable personal circumstances Lack of cash 1 billion Lack of larger- cushion if scale harvest fails farmers Risk aversion 1.5 billion small- scale farmers Novelty of product Equipment Purchase Technical and input of assistance provision production Productivity-enhancing 2.5 billion people living from products and practices agriculture in poor countries Source: FAO 3
We analysed 15 pioneer organizations working in over 15 commodities with 2 million small-scale farmers ∂∂ ∂∂ Empresa de Comerciali- ∂∂ zação Agricola (ECA)
The virtuous cycle of value creation TO CAPTURE CREATE AND SHARE NEW MAX. VALUE BENEFITS IN AN EFFICIENT WAY 5
TO CAPTURE CREATE AND SHARE NEW MAX. VALUE BENEFITS IN AN EFFICIENT WAY 6
Great potential to increase income for farmers of all sizes, across commodities… Increase in farmer net Size of farmer Commodity income Multiple 41% Maize 57% Very small (<2 acres/2 cows) Intl. commodity 60% 125% Milk Intl. commodity 25% Multiple 80% Small Onion 100% (~2 acre/2 cows) Milk 120% Milk and others 125% Intl. commodity 20% Medium Intl. commodity 35% (>2 acres/2 cows) 140% Milk 7
…and to transform livelihoods, by freeing farmers from intermediaries and allowing them to become entrepreneurs “ Not only am I making more money, but I have become an entrepreneur .” Krishi Mitra, India “ Now, we get paid five times more, consistently on time. We can now save, plan and educate all of our 8 children. ” Joseph and Paulina Bett, Kenya 8
The organizations working with small farmers also derive significant benefits Additional net margins for buyers of produce* (as % of sales) Premium on selling price 2% Better quality of produce 5% Logistical gains 5% 15% 24% Increase in number of small-scale farmer clients for sellers of inputs/equipment X 3.3 X 4 X 5 *On top of margins made at the processing plant or dairy hub level 9
Only projects that offer productivity-enhancing inputs or equipment manage to increase farmer income by more than 80% Productivity- Market Increase in farmer Technical enhancing input access / net income assistance and equipment purchase ✔ ✔ ✔ 140% Increase in production ✔ ✔ 125% and productivity ✔ ✔ ✔ 125% ✔ ✔ ✔ 120% Higher selling prices ✔ ✔ ✔ 100% ✔ ✔ 80% ✔ ✔ 60% Others ( ✔ ) ✔ 57% (savings, dividends ✔ 41% etc.) 35% ✔ ✔ ✔ ✔ 25% 10
Yet, it is neither the prospect of important gains nor the limited need for upfront investments that drive penetration Cost to farmer in % of total Increase in farmer Penetration rate revenues from project net income 90% 28% $325 40% 70% $280 26% 70% $420 60% 63%* $520 26% 20% $21,000 15% 12% $2,000 15% 0% $200 15% 42% $130 1% 27% $1,000 *Estimates 11
…but the farmers’ perception of risk Ability to quit Guarantee / insurance Penetration project easily ✔ ✔ 90% ✔ 70% ✔ 70% ✔ ✔ 60% 20% 15% ✔ 15% 15% ✔ 1%
For 1-way bio-conversion projects, it is essential to combine long-term incentives with short-term rewards Yearly change in yield Without Khyati With Khyati 20% 15% 10% 5% 0% Year 0 Year 3 Year 1 Year 2 -5% -10% -15% -20% +5-10% income +10-15% income +5-10% income increase thanks increase thanks to increase through Benefits price premium savings on to higher soil to chemical inputs productivity and savings on farmers Less dependency transportation cost and market fees on money lenders for resource poor farmers Support ON-GOING SUPPORT ON ORGANIC CONVERSION AND CERTIFICATION by Khyati Foods 13
TO CAPTURE CREATE AND SHARE NEW MAX. VALUE BENEFITS IN AN EFFICIENT WAY 14
Relative levels of investment into farmers are surprisingly similar, despite wide differences in absolute amounts Spending per farmer (% of product bought from farmer or input Total yearly investment of company into provider’s sales to farmer) farmer $125 4% $67 5% $24 6% Buyers $170 6% $3300 6% 8% $50 $9 10% Input providers $10 10% Equipment 8% $20 provider* * Annualized over lifetime of equipment 15
Optimizing investment in farmer over the adoption, satisfaction, expansion and retention cycle ENSURE PRODUCT AVAILABILITY 1. Adoption 3. Expansion 4. Retention 2. Satisfaction Overinvest in Control Choose well Limit costs satisfaction of churn and early adopters of expanding to first users side-selling more risk adverse farmers Aware, Satisfied Early Satisfied, Village tempted users adopters loyal users prospects Positive word-of-mouth Dissatisfied users Negative word-of-mouth 16
Choose farmers with high potential to become successful first adopters Rajendra Hari Patil, Not the poorest Not the richest JAIN early adopter Highly risk-averse Teacher with a BA, chose to go Less incentive to change back to his land; had not too behavior Low level of trust in much to lose but enough to gain Keen to protect acquired outsiders First adopter of JAIN banana wealth and avoid risks Agriculture as seedlings, tripled his income ‘subsistence’, not in Not necessarily easy to in one year a business mindset identify with for Spontaneously organized workshops to motivate others to follow his lead 17
Offer upfront technical assistance to build trust and ensure farmers capture benefits of products and assets Higher production Higher productivity Low productivity and productivity Up to +100% milk 2-3L / cow /day E.g. new cow, and higher fat Low fat content machine content STEP 2 STEP 1 • Push for cattle • Capacity building investments with modern milk e.g. cross breed prod. knowledge • Sales of • Sales of inputs equipment e.g. e.g. concentrated Income & trust Satisfied farmers milking machines feed at costs • Access to credit • Veterinary care (pilot) e.g. vaccination and insemination 18
Leverage IT, a powerful lever to decrease delivery and outreach costs, and offer quality services Making farmers Making extension agents Offering new services play a role in operations more efficient Real time information Client files with history New services Support in clients (on market, weather, crop, (e.g., weather based crop etc.) on farmers’ mobiles interactions insurance, with automated Mobile money payment Salesforce support pay-outs) (route planning, etc.) Empowers farmers Targeted marketing New markets Reduces costs for Sales performance farmers, organization tracking Reduces risk of fraud Reduced costs 19
Some projects experience significant ‘leakage’ in terms of side-selling, default rate and poor client loyalty Respect Loyalty of engagement Client loyalty over behavior of (% of farmers completing time farmer loan payment or selling (repeat customers) production in contract farming) 95% 94% 95% 95% 100% NA Loyal 100% 97% 100% 95%* Farmers cheat regularly, 70%* 95%* Cheater but want to stay with program 90% 95% 70% 90% Farmers switch to other crops Opportunist or other buyers 70%* 90%* Project does not have Leaver 100% 80% product offering for farmers who succeed and grow *Estimate 20
TO CAPTURE CREATE AND SHARE NEW MAX. VALUE BENEFITS IN AN EFFICIENT WAY 21
How to get to a win-win when one side is more dependent than the other? …Or become Set up effective lock- in mechanisms… irreplaceable Farmers dependency (level of purchase from or sales to company) High (45-100%) Low (10-45%) Project 1 Project 2 Riskiness Project 3 Project 4 for company High COMPANY’S DEPENDENCY “MARRIED” (spend or Project 5 Project 6 investment per farmer, share Project 8 Project 7 of small Project 10 farmers among Project 9 clients) FARMERS’ DEPENDENCY Low “FLIRTING” Need for “benevolent” organization. Cooperatives? 22
Upgrading product offering for successful farmers is as way to limit churn while improving overall project economics Retention Retention Current average indebtedness Potential loans increase after one after one controlled by capping loans as farmers grow, year: year: to $200 (currently piloting but their debt capacity higher debts) 80% is reassessed at each step 95% $6 522* (so far) $200 $1412* $136 $706* *Maximum potential size of loan, doubling with full repayment: every new loan goes through a new credit appraisal and acceptance is not automatic 23
Recommend
More recommend
