O slideshow foi denunciado.
Utilizamos seu perfil e dados de atividades no LinkedIn para personalizar e exibir anúncios mais relevantes. Altere suas preferências de anúncios quando desejar.

MDF Lead Firm Cases compilation, dec2008

2.440 visualizações

Publicada em

Publicada em: Aperfeiçoamento pessoal
  • Seja o primeiro a comentar

  • Seja a primeira pessoa a gostar disto

MDF Lead Firm Cases compilation, dec2008

  1. 1. Thematic Working Group - Working with Lead Firms Compilation of Cases On Working With Lead Firms Compiled by IFC-SEDF Dhaka 11 November 2008
  2. 2. ‘PARAGON POULTRY CARE LABORATORY’ CASE STUDY Industry Overview: Poultry industry as an emerging agri-business started during the eighties in Bangladesh. With the beginning of small scale layer and broiler farming in the early 1990’s, the production stage has taken up the shape of an industry. In addition to production and sale of day-old chicks, live chickens, eggs and poultry feed, large companies in Bangladesh have also started to produce processed chicken meat and further processed products. The industry has attracted investors’ attention and has made notable changes in the last decade for commercial poultry production. As of 2005, the private sector has invested about US $887 million into poultry industry Bangladesh Poultry Industry: At A Glance 1 Total Investment (2005): US $887 million Output Market: About US $1 billion (1.6% of GDP) Employment Generation: 5 million (Direct and Indirect) Women Employment: 25% Livestock to Agriculture GDP: 16.42% [USD 1.98 billion] Meat consumption/person/year: 3 kg/person/year; (Thailand – 14 kg) Small Farm Size: 500-2000 Birds Number of Farms: 150,000 Access to good quality laboratory services is one of the major constraints in the poultry industry. This specific IFC-SEDF intervention facilitated improvement of laboratory services that were being provided to small (500- 2000 birds) and medium farms (including hatcheries) in the area. Gazipur is considered the ‘Poultry Capital’ of Bangladesh having about ten thousand micro, small and medium farms in and around the district. The Poultry Care Laboratory of Paragon Poultry Ltd. was established in Gazipur district to provide technical back-stopping services to poultry units under the umbrella of the Paragon Group. So even though the laboratory extended services to external customers on commercial basis, the laboratory was indifferent to customers needs and the customers were dissatisfied with the quality of services. Discussions with Paragon and Poultry farmers led to IFC-SEDF assistance to improve the existing diagnostic facilities and quality of services. The objective was to make it technically competent and financially sustainable. It was identified that without improvements in laboratory management, the technical services would not yield desired results. The technical assistance followed a structured approach and started with an analysis of the existing operations and management system. Active participation of the top management at Paragon facilitated fast decision–making to translate recommendations into actions. The firm received practical on-site advisory services 2 and four out of nine recommendations were immediately adopted. 1 Sources: Sub-sector and Value Chain Analysis of Poultry, IFC-SEDF 2005; National Avian Influenza (AI) Plan, Government of Bangladesh, 2006 2 Example: Eight technologies transferred; 20 technical procedures generated; 18 technical guidelines generated; four key staff provided practical on-the-job training 1/3
  3. 3. After the departure of the expert, the management took steps to develop a new business strategy. The lab was established as a Strategic Business Unit (SBU) with clearly defined responsibilities of the technical staff, investment outlays, and a marketing approach and started to operate as a financially independent unit. The management expects that it will be viable through extending quality services within the firm as well as to external clients. The immediate results made the management more confident to undertake an initial investment of BDT 1 million. This investment and change in management system and attitude resulted in increased revenue. The following table provides summary of revenue generated and compares the before and after situation: Paragon Poultry Care Lab, 2007 Indicator BDT US $ January – May (Monthly Average) 19,293 284 June – August (Monthly Average, Post TA) 40,083 589 Present Investment in Equipment (Post TA) 1,000,000 14,706 Future Estimated Investment in Improved Laboratory & Infrastructure (Planned) 2,000,000 29,412 IFC-SEDF assisted TA, together with better communication between the local poultry association and Paragon, has spurred the management into looking at the laboratory as a viable business unit. Paragon has committed further investment in equipment and human resources. As the poultry industry in Bangladesh is moving to the next level and new threats such as bird flu enhance the value of sound technical back up, specialized services and providers will have a strategic importance in the value chain. The cooperation between Paragon and IFC-SEDF is also proving to be a lesson for other lead firms having similar operations. Poor quality laboratory services is only one element of making small poultry farms more sustainable. Other key issues such as poor but expensive feed nutrition, supply chain inefficiency 3 are also impacting poultry farmers’ income and investments. To address these issues IFC-SEDF partnered with large poultry companies such as suppliers of Day Old Chicks and Poultry feed (lead firms). However significant challenges and opportunities remain on the environmental and social development side. Large poultry waste emerging from both small and large poultry farms is yet to be addressed. Similarly no analysis has been done so far on employment conditions in small poultry farms. This case study highlights that sub-sector analysis is key to identify what needs to be done and who in the supply chain is best placed to transmit change alongside ongoing market based interactions. This necessitates diversity of approaches, providers and interventions. Not all interventions succeed and most triggers causing significant change 3 For example Enterprises selling Day Old Chicks and Poultry feed send technical staff to agents selling these products to farmers. However there is absence of technical interaction between technical staff and farmers and farmers are unable to feedback to supply companies. 2/3
  4. 4. seem very simple after the event (not rocket science). But in the context of poorly linked supply chains, inadequate information and co-ordination failures, there are significant market failures. These market failures present opportunities for leveraging a significant development return on small timely investments by projects such as IFC-SEDF. 3/3
  5. 5. Lead Firms in the Value Chain: the Development of a Globally Competitive Cashew Industry in Mozambique SEEP Network Annual Meeting Role of Lead Firms in the Value Chain: Benefits to Micro and Small Enterprises October 28, 2005
  6. 6. THE HISTORY OF MOZAMBICAN CASHEW IS A WELL KNOWN AND RECENTLY POSITIVE STORY 1920’s to 1974 1975 to 1994 1995 to 1998 1999 to 2001 2002 + Growth Collapse Attempted recovery Relapse New growth Raw nuts exported from Mozambique Raw nuts, period average, 000’s tons* Raw nuts processed in ** 55 Mozambique ** 175 6 51 21 42 62 26 12 3 • World’s leading • Production • Marxist policies • Abandonment of • Promising growth in cashew nut producer collapses in the abandoned raw nut export medium scale (240,000 t/year at space of a few • Civil war ended taxes, forced by decentralized peak), years, due to: • New investment in World Bank leads processors through • Portuguese-run –Exile of white processing to collapse of new entrepreneurs plantations plantation technology, based uncompetitive • Little progress owners, on large plants domestic being made in • Considerable technicians and and mechanical processing orchard domestic processing entrepreneurs processing industry regeneration industry with –Marxist policies technology • Continued lack of reputation for quality of fixed raw nut • Introduction of investment in tree prices high export taxes planting and –Dislocation of on raw nuts, to clearing rural population, support domestic hamstrings raw due to civil war processing cashew nut • Raw nut export industry production banned 2 * Significant differences in datasets examined exist although there is agreement on overall trends, ** 1973-1974 average only Source: Cashew Week publications; ‘Developing the Cashew Nut Industry in Mozambique’ Report, INCAJU; FAO stat; ‘When Economic Reform Goes Wrong: Cashews in Mozambique’ McMillan, Harvard University
  7. 7. THE CASHEW MARKET IS DIVIDED INTO THREE STAGES: GROWING, PROCESSING, AND CONSUMING CASHEW MARKET OVERVIEW Growing Processing Consuming 100%=1,470,000 100%=230,000 100%=230,000 tons raw nuts tons finished tons finished kernels kernels Other India India Market Market size/ size/ split split US Africa* Vietnam Brazil Europe Brazil Vietnam Other India Mozambique Africa* Other Africa* Brazil • India processes the bulk of • Mozambique produces only world cashew kernels, and • US and Europe are the main Comments 3% of world cashew nuts, has to import raw nuts to single markets Comments down from more than 20% in • Mozambican domestic supply its factories 1972 • Mozambican processing is market is insignificant • 90%+ of Mozambican nuts are insignificant (<1%) (<0.04%) processed abroad *Excluding Mozambique 3 Source: Indian Cashew Association, TechnoServe estimates; includes only traded nuts (excludes nuts processed/consumed at village level)
  8. 8. TO REALIZE THE POTENTIAL FOR MOZAMBIQUE TO GROW, THE INDUSTRY MUST OVERCOME SEVERAL CHALLENGES Challenges to future growth Resulting priorities and success for industry • Raw nut factory gate prices rising due to 1. Ensure low total cost to Shrinking exporter competition and increasing transport market margins costs • Raw nut export tariff protection (18%) likely to fall eventually • NGO support likely to be gradually reduced in 2. Secure future demand recognition of industry success through reputation building • Kernel price falls, especially short term, possible due to increasing production and market speculation 3. Expand production • Global production expanding Demand • Mozambique still relatively less attractive for uncertainty buyers due to scale, quality and delivery reliability 4. Encourage replanting and quality nut production • Many existing entrepreneurs appear to be Capacity approaching effective capacity limitations • Aging tree orchards means declining raw nut supply and falling quality 5. Ensure national significance of industry is reflected in policy making 4 Source: Interviews, team analysis
  9. 9. THE POTENTIAL FOR A GLOBALLY COMPETITIVE CASHEW INDUSTRY IN MOZAMBIQUE IS HIGH. IN 2002, TECHNOSERVE BEGAN WORKING WITH A LOCAL ENTREPRENEUR TO DEVELOP SMALLER SCALE PROCESSING PLANTS MOZAMBICAN CASHEW INDUSTRY – FUNDAMENTAL BELIEFS Comments • High US per capita consumption (250g per person per year) – Excellent future Excellent future strong catch-up potential for other markets, both EU, Asia and prospects prospects emerging economies for cashew nuts for cashew nuts • Mozambican climate is excellent for cashew growing evidenced by Mozambique has fact that 30 years ago Mozambique was the leading producer Mozambique has strong potential… • High availability of low cost labor strong potential… • The failures of the last 30 years can be ascribed to a combination of …if approached in civil war, Marxism and inappropriate industrial policy (focus on large …if approached in the right way scale, expensive, but ineffective processing plants, lack of farmer the right way incentives) • Currently, liberalized industrial and economic policy leaves the field clear for new players • Suggested approach is to use smaller scale processing plants with technology and management appropriate to local conditions 5
  10. 10. THE HEART OF SMALL SCALE APPROACH IS A SIMPLE, 8-STEP MANUAL CASHEW PROCESSING METHOD DEVELOPED BY TECHNOSERVE & MIRANDA INDUSTRIAL. THIS PROCESS IS IMPLEMENTED IN RURAL AREAS – CLOSE TO THE SOURCE OF RAW MATERIAL Basic processing Post-processing 1.Calibration 2.Steaming 3.Air drying 4.Shelling 5. Oven 6. Peeling 7. Sorting 8. Packa- drying ging 25 25 lbs lbs 50 lbs • Raw nuts • Raw nuts • Steamed • Nuts are • Kernels • Kernels • Kernels are • Kernels are Description are graded are Description nuts are cracked are oven- are sorted and CO2- into steamed dried, to (shelled), dried peeled graded (size, flushed and batches under high make to free the wholes, vacuum- based on pressure shell kernel butts, white, packed in nut size brittle and scor-ched) 25 lbs bags easy to (2 to a crack carton) *Process is based on manual processing method used in Kerala, India [world’s leading cashew processor], but adapted to Mozambican conditions 6 ** 120 ton pilot plant example; total equipment cost is around $40.000, plus around $30.000 for necessary buildings Source: Antonio Miranda, TechnoServe cashew client
  11. 11. SEVERAL KEYS TO SUCCESS WERE IDENTIFYING THE RIGHT PROCESSING TECHNOLOGY AND ORGANIZING FOR COMPETITIVENESS Advantage of smaller scale Success factor Description methodology 1.Competitive 1.Competitive • Buy nuts at low but fair price • Placing smaller factories in rural areas sourcing of quality sourcing of quality (including transport costs) allows for shorter transport distances, raw nuts raw nuts • Buy best possible quality nuts and cuts out middlemen • Large plants do not source raw nuts at lower prices than smaller plants • Push processing costs as low as • Low cost compared to mechanical 2. Low operating 2. Low operating possible - a function both of level of shelling cost cost salaries, and efficiency of workers –Effective manual shelling method –Low labor cost in rural areas –Well-managed operation 3. Low capital 3. Low capital • Push capital costs per kg. of • Smaller scale plant’s capital costs cost cost processed nut as low as possible - only 25% of large scale plant a function of level of investment, • Smaller scale plants more likely to capital efficiency and capacity achieve 100% utilization utilization • Profits are highly dependent on • Manual shelling has superior 4. High output 4. High output average sales prices - reliant on the quality to mechanical shelling, if quality quality proportion of valuable whole nuts in workers are properly trained and the finished product incentivized 7 Source: TechnoServe, World Bank report on Mozambican cashew industry
  12. 12. EACH PROCESSING FACTORY CREATES MEASURABLE POSITIVE IMPACT FOR EMPLOYEES, FARMERS, RURAL COMMUNITIES AND THE BROADER ECONOMY Impact for community Single factory: and economy 1000MT pa raw nut capacity • Increased export earnings Impact for smallholder • Essential infrastructure farmers investment (e.g. roads, airstrip) • Reliable direct procurement • Processor-funded projects (e.g. Impact for employees from ~10,000 farmers schools, healthcare) • 300 jobs created paying • Increased payment for quality • Employment creation for >$15,000 in salaries per month raw nuts (exporters mix quality support services (construction, and underpay for good nuts) maintenance, transport etc) • ~35% female labor force • Extension program • Stimulus to community • Employment conditions include: –Provision of seedlings from economy, secondary effects –Minimum wage salary processor-owned nursery farm –1 month paid holiday –Farm management training • Reducing HIV/AIDS risk from –All insurance, health and –Input supply at reduced cost employment-driven migration pension entitlements –1 meal per day • Additional industry creation for –Child care facility by-products (e.g. CNSL processing) TechnoServe, CLUSA, and ACDI/VOCA are implementing USAID’s Emprenda program in Mozambique to drive development of supporting industries, improve coordination of 8 stakeholders, and build local capacity to carry this forward
  13. 13. “LEAD” FIRM -- TECHNOSERVE ASSISTED AN ENTREPRENUER TO LAUNCH A SINGLE PILOT PLANT TechnoServe and partners helped • In 2001, Antonio Miranda, a by: Mozambican entrepreneur, • Assessing global performance piloted a small-scale, manual, benchmarks and developing initial rurally located processing plant business plan • In 2004, he opened a second • Providing world class advice 1,000-ton factory – with revenues focusing on processing productivity over $1 million and quality • In 2004, we worked with 11 other • Creating links to producers and Antonio Miranda entrepreneurs – trained by supporting raw nut quality Miranda – totalling more than Entrepreneur’s qualities: improvement 7,000 tons of processing • Innovative capacity. Over 1,800 processing • Visionary • Creating links to export markets jobs created in areas with little • Thrifty formal employment. • Socially conscious • Assisting in raising investment and working capital • Producers are paid premiums up to 60% over that paid by traders • Identifying additional entrepreneurs • In 2005 the firms will purchase almost $3 million in raw material, from 80,000 small-scale farmers 9
  14. 14. HAVING STARTED WITH A SINGLE ENTREPRENEUR, TECHNOSERVE NOW WORKS WITH 11, WHO ARE EXPECTED TO PURCHASE FROM 80,000 SMALLHOLDER PRODUCERS THIS YEAR IMPACT OF GROWTH OF CASHEW PROCESSING ON SMALLHOLDER PRODUCERS # of smallholder producers Value of purchases from smallholders • Each family sells between 80- 2003 9530 $ 574,000 100 kg of raw cashews • Average payment per family is $40 2004 41,800 $ 1.4 Million • Additional extension services (such as assistance with replanting cashew trees, groundnut production) to be 2005 79,800 $ 2.8 Million offered by processors 2006 111,500 $ 3.9 Million 2007 146,000 $ 5.1 Million Source: TechnoServe client data and projections 10
  15. 15. CASHEW PROCESSING IS ALSO BECOMING A SIGNIFICANT GENERATOR OF EMPLOYMENT IN RURAL MOZAMBIQUE. IN 2003-4, 11 NEW CASHEW PROCESSORS CREATED 1,800 JOBS IN NORTHERN MOZAMBIQUE… “I really like working, and I really like working here. Now I have money to feed and educate the children.” “I’m very satisfied with the working conditions here.” “Many people cried because there weren’t enough positions at the factory for them to get a job”.* “I want the factory to grow really big.” “Maybe one day we can have a hospital and a daycare center.” Atija Soalahe, 33 years old, widow, 6 children, factory worker at Miranda Industrial *Over 1,000 local residents applied for the first 70 positions at Miranda Industrial’s factory 11
  16. 16. CRITICAL TO THE SUSTAINABILITY AND SUCCESS OF MOZAMBIQUE’S CASHEW PROCESSORS IS A NEW HOLDING COMPANY: ASSOCIATION OF AGRIBUSINESS INDUSTRIES (AIA), ANOTHER “LEAD” FIRM • A private holding company (not an association) formed by leading cashew processors (TechnoServe clients) in Mozambique • The primary marketer of kernel for its members • Acts as quality control agent (HACCP, EurepGap) with a “three strikes and you’re out” system TechnoServe is assisting AIA to build • Provides training (and other technical its capacity so that it replaces assistance) to members TechnoServe as the major industry service provider within three years • Currently in the process of launching a new brand – Zambique – to communicate the superior quality of Mozambican kernel 12 • Coordinating industry to increase
  17. 17. WE ARE APPLYING THE LESSONS LEARNED IN OTHER GEOGRAPHIES AND SECTORS… Application of approach in other Cashew consequences value adding sectors with growth potential • Mozambique: • Coffee – milling and marketing (Tanzania) – 11 processors operating • Dairy – bulk cooling and processing – Entrepreneur owned service (Kenya) company launched • Horticulture – quality production, – Capacity to process >25% of packing, processing, wholesaling and country’s raw nuts distribution (Ghana, Kenya, Uganda, • Partnership with Olam (through a Mozambique, South Africa) GDA) to develop processing across • Field crops (maize, cassava, sorghum, Sub-Saharan Africa sunflower) – food processing, pre- • Application of lessons learned processing of inputs into other value underway in Tanzania, Kenya, South chains (Ghana, Mozambique) Africa, Benin • Poultry – feed preparation, broiler • Active exploration in rest of W. Africa processing (Mozambique) 13 Source: TechnoServe analysis
  19. 19. Working with Lead Firms through Public, Private Partnerships September, 2008 One of the tools which GTZ uses to work with lead firms in different sectors is establishing public, private partnerships (PPPs). When companies setup production units or outsource production facilities abroad or develop business relations, they often work on topics which are also important for development policy. Examples include introducing environment-friendly technologies, caring for security and health at the workplace, or establishing vocational training centers. In doing so, however, they sometimes encounter obstacles, which might be overcome more easily with the support of an experienced partner. This is why the German Federal Ministry of Economic Cooperation and Development (BMZ) initiated its Public-Private Partnership Programme (PPP) in 1999 implemented by GTZ. Mutual Benefits PPP cooperation arrangements serve the interests of both parties. For GTZ, focus is placed on development-policy objectives. The benefits for our corporate partners include: • GTZ offers valuable expertise and contacts in about 130 countries resulting from 30 years of international cooperation. • GTZ can facilitate access to public and private institutions as well as to decision-makers. GTZ is experienced in managing complex processes - especially under politically and economically difficult circumstances. • PPP projects can improve the framework for entrepreneurial success and minimize risks for investment. PPP – How does it work? PPP projects between GTZ and the private sector are jointly planned, financed and implemented. Four criteria must be met: 1. The projects must have solid economic and developmental objectives, making a tangible contribution in the partner country. 2. The scope of the project must extend beyond the company's core business, as PPP contributions are not subsidies. 3. The private partner must bear a significant proportion of the project costs, generally at least 50 per cent. 4. The project must be in line with the basic principles of German government development policy. GTZ executes PPP projects around the globe: from Mexico City to Manila, from St. Petersburg to Pretoria. Commonly, GTZ's partners are small and medium sized enterprises as well as multinational corporations. PPP projects range from vocational training to environmental protection, the development and implementation of standards and new technologies. Promising partnerships are possible in many ways - what matters is an innovative idea. Most successful are PPPs when linked with local entrepreneurs and bilateral technical cooperation projects in developing countries. In this case, the private sector can benefit directly from governmental agreements between Germany and its partner countries. Especially interesting are strategic alliances with several companies (cluster approach), business associations and chambers. 1
  20. 20. PPPs in Bangladesh 1. Social Compliance Background Tchibo is one of the major German retailers who are operating retail stores in Europe. In order to reduce production costs, most retailers have outsourced their production to developing countries. Tchibo is no exception. Currently, Tchibo is sourcing from wide range countries around the world. There is always skepticism from different interest groups regarding the working conditions in such countries where the European and American brands source from. Nowadays, consumers are also becoming very aware of where and how their purchased items are being manufactured. In order to address these concerns, Tchibo took the initiative to be proactive and work with their suppliers on improving working conditions in their global supply chain. To implement this initiative, Tchibo teamed up with GTZ in a public private partnership project. This project is taking place in three Asian countries where Tchibo is currently sourcing from. The time frame of the project is three years (2008 to 2010). One of these countries is Bangladesh. In Bangladesh, Tchibo, in partnership with GTZ, is working with 10 readymade garments manufacturers and several service providers. Objectives The two main objectives are to: - Improve the social compliance status, productivity aspects and quality issues in the ten participating factories, and - capacitate private consultants, consulting firms and public training institutes with the aim to deliver better services to the readymade garments sector in the field of social compliance. Approach The project is jointly planned and implemented by Tchibo and GTZ. GTZ’s contribution to this partnership is to: • Provide technical expertise such as the training curricula, materials and trainers • Manage the project in the implementing countries • Monitor the impact of the project activities Tchibo’s responsibilities include: • Financial contributions for the project implementation • Nomination and access to suppliers to implement project activities • Sharing project management and monitoring responsibilities with GTZ Achievements Major results realised during the past six months since the start of the project in April 2008 are: - Establishment of a joint project vision, mission and understanding regarding project objectives, strategies and roles and responsibilities of each party involved - Availability of baseline data about: (i) current social compliance status in the participating factories and (ii) capacity of local service providers offering social compliance services - A better understanding among about 100 mid-level factory managers and workers regarding social compliance in general and better relationships and communication between workers and managers, in particular. 2
  21. 21. 2. Solar Home Systems (SHS) Background A crucial point for the acceptance and dissemination of solar home systems (SHS) in majority of the least developed countries, such as Bangladesh, are the costs for purchase and maintenance of the SHS, as well as availability of maintenance services. The quality of the products, especially of the charge controllers in the SHS, as well as the correct handling of the SHS by the users, has an important influence on the lifespan of the systems. Cost reduction and with that a wider use of the technology can be gained by a prolongation of the systems’ lifespan as well as through local production which meets certain quality standards. In order to address these quality and maintenance issues of SHS especially related to locally produced components, such as, charge controllers, light emitting diodes, CFL, photovoltaic panels and batteries, a PPP was initiated in 2006 and implemented for three years comprising of the four following parties: • Phocos AG: A German company who are one of the leading manufacturers of components for photovoltaic solar systems. • Grameen Shakti: A local company which belong to the Grameen enterprise family. The company supplies solar home systems and biogas plants particularly in the regions of Bangladesh where conventional power grids are not expected to be set up within the near future. • Bangladesh University of Engineering and Technology (BUET): The largest engineering university in Bangladesh. • GTZ through its project titled “Promotion of the Use of Renewable Energies (PURE)” Objectives The overall objective of the PPP was to ensure that a pool of trained personnel is able to provide improved quality for locally manufactured products and servicing of renewable energy technologies (RET) in Bangladesh, in particular solar lighting equipment. One sub-objective was to establish a quality management system, as a pilot project, in a local production facility for solar systems, following the ISO 9000 standard. Approach Capacity development activities comprised of training of the personnel from BUET, Grameen Shakti and other Bangladeshi consultancy firms, on manufacturing and maintenance skills of SHS components and also in the application of ISO 9000 standards into their work processes. All the training curriculum, material and processes were documented in a handbook and made available through the training courses which were established at BUET. GTZ assisted with the preparation, coordination and impact monitoring of the training measures. Phocos AG contributed by providing technical expertise and financial inputs as well as developing all the training tool kits and materials. Achievements After three years, the project was successfully completed and achieved the two main results which are as follows: • Improved services regarding SHS manufacturing and maintenance offered by a pool of 15 master trainers and three organisations equipped with quality training material comprising training tool kits and handbooks on quality management systems, and 3
  22. 22. • Increased quality of SHS components manufactured in Bangladesh by setting up a model, at Grameen Shakti, for an ISO 9000 compliant quality management system and through the installation of two testing machines at BUET and Grameen Shakti. 4
  23. 23. A CASE STUDY: Lead Organization: International Development Enterprises (IDE) Project Name: Agriculture Input Service Delivery Project (AISD) Project Length: 2007 – 2008 (First phase was Nov. 05 to Dec. 06) Donor: Swisscontact-Katalyst Coverage: Bogra, Joypurhat and Sirajgonj districts Contact: William J. Collis, Country Director: wjcollis@ide-bangladesg.org Shyam Sundar Saha, Program Director: shyam@ide-bangladesh.org IDE–Katalyst funded Agriculture Input Service Delivery (AISD) Project began on November 2005 with the aim to promote business solutions in the agriculture input (seed) and poultry sectors. The components, operating separately, both use BDS approaches to build private sector capacity to reach small and medium sized entrepreneurs in the poultry and seed sectors. Target is 25,400 farmers and 870 Business Development Service providers or families increased their annual income by an average 15-20% as a result of project activities by 2008. Beside, two specific objectives are to: a) improve the agricultural inputs delivery system and services for the farmers and b) improve the competitiveness of poultry sub-sector and its actors. AISD used a combination of research, advocacy, facilitation, and capacity building approaches to develop sustainable interventions to improve the agriculture Challenges and experiences: input delivery system and poultry service market. AISD is assisting In the beginning the lead company was smallholders to improve access to relevant inputs and services (horticulture lesser interest due to their promotional and poultry) through strengthening the capacity of poultry and vegetable strategies. The company bears different sets of fixed promotional strategies and limited input service providers. resources which limit them to take such interventions. They need additional cost, One of the major strategies was to work with private sector lead companies skilled human resources, and time; less and make them a sustainable source of services for the input sellers and aware on corporate social responsibility and sustainable impact of services. IDE’s householder farmers. In the light of market constraint and study findings, initiatives, marketing approaches assured AISD worked with the lead companies to facilitated services for the target them to be part to promote business services clients. Major problem faced by the farmers in agriculture input markets as to the farmers to create permanent business found by the assessment study were: poor seed quality, lack of production relationship and trustworthiness among the information and related risk factors from seed sources, lack of knowledge on clients which will contribute in business growth, and it happened. proper cultivation practice; constraint for poultry input market were: high feed conversion ratio (FCR), lack of management practices, high mortality; production cost, limited farmers’ knowledge on commercial farm management, Service providers(Paravets, lead farmers and input retailers) lack technical skills and limited coordination among the members of existing poultry farm owner association. To address those problems- by the joint effort of IDE and the private lead companies (Novartise, Intervet, Navan, Eskayef Pharmaceuticals, Laleer Seeds Ltd., Supreme Seeds Limited, and Dynamic Agro Science Ltd) facilitated technical assistances and business services to strengthened the capacity of poultry farmers associations, trained and build up capacity of Health Care Service Providers, poultry & agriculture input retailers and, Mobile Seed Sellers. Set several seed demonstrations, established information resources centers at association level so that farmer can access to information. Developed linkages with local and forward market traders to procure inputs and selling products. A total of 231 unions of 29 upazillas have been covered as of September 2008 by the project interventions. As of end September 2008, about 32,000 households are being severed by more than 800 AISD trained service providers (seed sellers, soil testing entrepreneurs, lead poultry farmers, poultry service providers/paravets, poultry de-beakers, poultry input sellers) available in the value chain. Inputs company now bearing a positive attitude to provide right and quality information to the farmers to face market competitiveness. Farmers feel comfortable to contact with service providers to get services when they are in need and they know the alternatives. Facilitating services, company got sales growth, accessed to remote and new market, established product and quality image in the target markets. Now the lead companies are treating the services as part of corporate social responsibility and a copping strategy to sustain in the market. An impact monitoring survey revealed that the project contributed in increasing income by 26% for vegetable farmers, 18% for mobile seed sellers, 15% for seed retailers, 25% for dealers, 11 % for poultry farmers and 63% for poultry service providers (paravets). Vegetable production cost reduced by 3-5% due to increased use of quality seeds and production increased by 10-15%. In case of poultry, production cost reduced by about 5%, medicine cost by 30% and reduced mortality by about 5%, the FCR has reduced from average 2.81 to 1.50 and average broiler production has increased by 20%. AISD initiatives boosted market competitiveness, created service demand among the farmers and also prepared the service markets for better market system.
  24. 24. Case on Lead Firm in Developing Dairy Value Chain in Bangladesh The "Strengthening the Dairy Value Chain in Bangladesh" is a project of CARE Bangladesh which will be implemented in 9 districts of North and Northwest of Bangladesh for a period of 4 years (2007-2011). The project design is based on investment from the private sector and development of profit-driven infrastructure, making it sustainable. The vision of success is that targeted landless and smallholding households in North and Northwest Bangladesh have more sustainable livelihoods through incorporation into a strengthened milk value chain. The core objective is to eliminate existing bottlenecks and establish a value chain where all stakeholders (e.g. from producer to final consumer and people who are directly and indirectly related to the chain) will be benefited. In Bangladesh the production of milk is very low and can barely meet local demand. In addition, the production cost is very high compared to other countries. It’s quite impossible to export with this limited amount of milk after trying to cater to local needs. Average milk production per cow is very low (0.75 liters according to the dairy value chain study carried out by the project). Lack of producers’ knowledge and information regarding animal health and nutrition is the major factor impeding upon productivity. That is why increasing milk production and developing a dynamic milk collection system in rural and remote areas are primary objectives of the project. Furthermore, producers do not have sufficient produce- in volume and in quality to attract the formal sector and are not organized into groups to take advantage of market opportunities. Price incentive is based on fat content of milk whereas there is very limited example where small scale producers get direct fat based price from the formal sector who are the only users of digital milk tester in the dairy sector. Poor understanding of business principles and lack of information have been largely constraining small scale producers’ productivity, growth and strong formal sector development. Therefore the project is providing appropriate awareness to producers and also to motivate the formal sector to actively participate in the value chain development process. The project has been successful in promoting the fact that both producers and the formal dairy sector have much to gain from higher milk production and a skilled workforce. “We do not get good prices for the milk”, is a complaint that most of the producers made whenever they were asked about the constraints they were facing with their dairy venture. The problem contributes significantly to disincentives for producers to increase production. With this in mind, the project has designed interventions with the view to ensuring best available selling prices for producers from amongst existing market opportunities. CARE is also designing future program interventions in the fields of raising awareness, increasing productivity and livestock service development in rural and remote areas. To ensure competitive market price for producers the project is now facilitating the development of milk collection models together with the formal sector lead firms. There are existing chilling plants in the project area owned by formal sector lead firms, but both formal and informal milk processors have poor integration with small scale producers. Operating on average at only 10- 20% capacity, 37 chilling plants are within the project area, all of which are owned by leading private sector processors with many scheduled to be established soon. Integration of processors with the producers is largely absent. At many locations producers are not even sure which processor they are selling their milk to, since they tend to interact only with the collectors. From a processor point of view, organizing producer groups with such low volume only adds more transaction costs to their business operations. On the other hand the processors also pointed out that this procurement system also results in acquisition of poor quality of milk,
  25. 25. because most of what they are getting at the chilling plant gates is of the same poor quality. To address this significant constraint, drawing the progress of the chain backwards, the project has developed a workable milk collection model with the private sector lead firms, to increase quality milk production and ensure services for producers. In rural areas where producers are located more than a kilometer away from the formal or informal milk market, the collectors play the most important connecting role between producers and the informal / traditional market value chain. Collectors however, are careless in procuring milk from producers and therefore maintain low product flow. The project has focused on building informed and efficient producer groups and collectors who will understand the quality and quantity of milk lead firms demand. Firms like BRAC, Milk Vita, Rangpur Dairy and PRAN have already contributed to designing the model around producer groups- CARE is playing the leading role in facilitation. The lead firms are also motivated to provide more support and services once producer groups start to sell quality milk to each firm. In project areas, collectors create misunderstanding between processors and producers by misrepresenting facts. This poses even more of a challenge for formal sector processors who are tied to buy quality milk (at Figure 1: Lead Firm Approach in Developing Dairy Value IMPACTS: Lead Firm IMPACTS: - Lead firm is willing to offer more - Lead firm develop horizontal linkage for services if group continues volume of milk aggregation &information milk with quality dissemination. - Lead firm will introduce BSTI Collection - Lead firm will provide milk can, lactometer, Direct (Bangladesh Standard & Testing Point interest free loan to producer group Institution) approved milk measurement - Lead firm will provide competitive price pot. with bonus, feed & fodder, veterinary - Lead firm will develop improved milk service and other facilities to the producer. transportation system. Collectors - They will also monitor to ensure fat - Lead firm will provide information on Existing/New testing, pricing, bonus and other facilities price, quality, farm management and - They will introduce digital fat testing health and medicine services. machine if milk collection reached 200 liters - Lead firm will arrange awareness - Lead firm is placing the collection system session for both collectors and near the group or community. It will producers to increase milk production. increase the transportation cost of the lead - Lead firm will arrange training for their firm but will provide them long term benefit staffs to work effectively with value by getting quality and continuous supply. chain actors. Producer Producer Expansion Expansion Group Group Group Group 30 members Horizontal 30 members Integration Service Providers Livestock Officers Feed & Fodder Artificial Medicine Para-vets Supplier Inseminator Suppliers Project has already facilitated Facilitation is in process least with 3.5 percentage fat) to meet market standards, whereas the informal sector players do not.
  26. 26. Under such conditions the project is progressing towards leveraging existing collection systems where they are comparatively robust and effective and where the opportunity exists to strengthen and formalize collectors, while increasing the transparency of transactions between lead firms, collectors and milk producers. Project field staffs have been active in mobilizing collectors and teaching them business principles and ethics, and mutually beneficial ways of increasing profit while collecting milk from small scale producers- acquiring more milk in the process. (Collectors get Tk. 1 bonus for each liter of milk they supply to processors and extra bonus based on volume). Where there are uncompromising collectors, the producer groups are motivated to select and function through their own collectors. These decisions are made on an ad-hoc basis by producer groups and hinge on the local situation. As of now, initial sets of beneficiary groups have been formed; confidence and trust of processors have been gained; and the project is working further on the model with lead firms. Identified advantages, challenges & opportunities in the model: Advantages: Small scale producers are getting appropriate price for their milk. Direct contact between producers, collectors and lead firms established. Producers get updated information on quality product, price, feed & fodder, health care and services provided by lead firms. Lead firms are getting quality milk as they desired. Lead firms are well informed on current market situation. Accountability within the actors has been established. Tendency of milk adulteration has decreased. More business opportunities has been created for feed and fodder supplier, medicine supplier, artificial insemination and etc. Producers are now more interested on rearing cattle. Challenges: In some instances, lead firms involvement and transparency is limited, which produce distrust among producers, collectors and processors. Difficulty in creating a commercially viable milk transport system Resistance from traditional milk collectors Milk yields and quality improvements are largely constrained by unavailability and high costs of appropriate feed and lack of producer awareness on improved feed/fodder practices. Many paravet training modules have been produced by different non governmental organizations, but there is no single accepted version that might be adopted widely by various stakeholders. Lead firms fall back on management capacity Lead firms unable to make a profit from their existing chilling plants due to low milk volumes Short-sightedness of entrepreneurs seeking quick payoffs rather than long-term investments.
  27. 27. Opportunities: Small scale producers (SSPs), collectors and processors are directly linked to efficient collection mechanisms. Milk collection to be faster than before. Possibilities of spoilage and adulteration will diminish. Bring private investors together with financing institutions. Build relationships and clarify expectations between value chain actors. Develop marketing, collective bargaining, and leadership skills. M&E framework for the approach: Care SDVC project staff will implement the following M&E System (Figure 2). Lead firms will provide all relevant support in this regard. Staff will work closely with lead firms and at the same time advocate between producers and collectors to produce and transport quality milk. There will be in effect, a monthly and quarterly monitoring reporting system, in a given format, for the monitoring team. The monitoring framework for the lead firm model is given bellow. Figure 2: M&E framework for the approach Producer Collector Group Paravet Others Action SDVC Inputs M&E System & Reporting Diagram FF FF-Vet FF FF-Vet Team Team Team Mgt Monthly Team Report (Formative) Regional Mgt. Group UDVCSF Case Observation Farm Others Register Meeting Study Checklist Record Minutes 3 MONTHS COMPILATION PO-MRD PO, FF-V FF, FF-V PO, TO, Others Team, FF FF 3 Month Compilation of Team Report Quarterly Monitoring Report (Quantitative) (Quantitative & Qualitative) FF-V= Field Facilitator Vet, PO=Project Officer, TO= Technical Officer, MRD=Market Research & Development, UDVCSF= Upazila Dairy Value Chain Strengthening Forum
  28. 28. UPTOP Uganda Programme for Trade Opportunities and Policy Case studies of lead firm governance systems in the context of commercialization of smallholder agriculture in Uganda By Jörg Wiegratz, Paschal Nyabuntu, and Charles Omagor INTERNET VERSION OF THE FOLLOWING REPORT PART: ‘SUMMARY AND DISCUSSION OF MAIN FINDINGS’ This study was commissioned by the Uganda Programme for Trade Opportunities and Policy (UPTOP) with funds from the European Union (EU). 1 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  29. 29. About the researchers Nyabuntu P. is an Agricultural Economist (Makerere University, Wye College - UK). His field of academic specialisation is farm planning/business management and agricultural trade policy. He has wide experience of Uganda’s agricultural sector and has provided services to USAID, ILO, DFID and EU funded projects as well as international and local N GOs. His major interests are in agricultural enterprise development, value chains and market linkages for smallholder farmers. Assignments have included issues of enterprise identification and profitability, monitoring and evaluation of agricultural projects, development of BDS for smallholder enterprises, value chain design and analysis, sub-sector analysis, trade liberalization, and training of trainers. He was a researcher of the team’s earlier UPTOP study on Global Value Chains. In the present report, he was the researcher responsible for the Ibero case study and contributed to the summary. E-mail: pnyabuntu@yahoo.com. Omagor C. is a Senior Lecturer in the Department of Marketing and Procurement, Makerere University Business School (MUBS). He is a Marketing specialist (Makerere University, University of Lancaster - UK). At MUBS, he has facilitated the MBA programmes in the fields of marketing and management. His research interests include: business growth, value chains, network marketing, and spiritualism in business. He has carried out assignments for, among others, Uganda Management Institute (DFID funding) and the Uganda Veterinary Association (EU). He also conducts training courses in marketing and management for members of the Uganda Manufacturers Association. He was a researcher of the team’s earlier study. In the current report he was responsible for the Outspan case study and contributed to the summary. E-mail: comagor@yahoo.com. Wiegratz J. researches matters of value chains, competitiveness, political economy and human resource development (HRD). He is an Economist (University of Cologne - Germany) and Political Scientist (University of Warwick - UK). He has worked as a consultant and researcher for the Government of Uganda (UPTOP, Ministry of Tourism, Trade and Industry), UNIDO, and the GTZ. He is a Research Associate with the Economic Policy Research Centre (EPRC) and a part-time lecturer with Makerere University (Faculty of Economics and Management) and Makerere University Business School (Department of Marketing and International Business). He was the lead researcher of the Global Value Chain study. In the present study, he was the lead researcher with overall responsibility for the project. He wrote the introductory and summarizing sections of the report and undertook the case studies of Bee Natural Products, Sulmafoods and Jesa. Since October 2007, he is a PhD Researcher at the University of Sheffield (Department of P olitics) where he continues his work on value chains in Uganda. E-mail: J.Wiegratz@sheffield.ac.uk. 2 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  30. 30. Acknowledgement Thanks are due to the following: The main funding partner UPTOP (the entire tea m and especially Dr. Lindani Ndlovu and Steven Kamukama) for the financial and technical support and the MTTI for its overall support in carrying out the research. The Economic Policy Research Centre for its logistical support. David Opero (Makerere University) for his work as a Research Assistant. Rose Nakayi (Makerere University), Ruth Achimo Etibot (Gulu University) and Robert Ayine (Gulu University) for providing services as Research Assistants during interviews with farmer groups (conducting interviews in local language when required). Betty A.K.Businge, and Rose Nakayi for typesetting, and text editing respectively. Rose Nakayi for her personal support. Furthermore, we are very grateful for the immense inputs and comments provided by all respondents. F inally, we thank numerous colleagues for their support. Note This report has been produced under the UPTOP research pillar (competitive research grant competition). The core working period was about seven months (March-September 2007). The key findings of the report have been disseminated to stakeholders in Kampala in September; the full report of 416pp. was handed over to UPTOP at the end of October. About 500 copies of the report will be distributed by UPTOP at the beginning of 2008. The researchers currently try to find funding for a related book publication in 2008 to allow for wider distribution, among others. Note this internet version of the report summary is a slightly improved version compared to the one in the original UPTOP report; improvements were made mainly in terms of expression (clarity of the writing); no major new analytical content has been introduced. However, we have added a brief section on methodology which is in the main text in the printed report. Finally, as readers please keep in mind that the UPTOP report (and this summary of it) is an effort to begin to discuss the vast interview material and other information we got from the field research. Follow up analysis is actually required to explore certain issues in more depth, apply additional analytical perspectives, where required, and so on. At times we can only highlight in the report issues emerging from the interviews but not explore them further. This is also related to the concern of our funding partner with report size and the normal limitations of the main analytical approach applied in the study. The usual disclaimers apply. If you as a reader identify any mistakes or have any comments we would be pleased to receive feedback. Copyright © 2007 Authors All rights reserved. No part of this publication may be reproduced, in any form or by any means, without permission from the authors. 3 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  31. 31. Summary and discussion of main findings Introduction The study is set in the context of: (a) overall weak farmer-buyer relations in most parts of Uganda’s agro-sector which affect the development prospects of small holder farmers (SHFs) 1 , and (b) a growing interest by the private and public sector, including the Government of Uganda (GOU) and development agencies in the contribution of value chain (VC) analysis and support interventions to economic development in the country. This study analyzes the governance of domestic value chains (DVCs) in the agricultural sector in Uganda. It focuses at exploring how agricultural produce buyers set up, coord inate and monitor - that is govern - the DVCs with their supplying farmers. Particularly how buyers govern the latter’s activities and performance and thus the division of labour in the DVC. Governance in this context constitutes for instance: (i) setting the requirements for farmers in terms of product quantity, quality and delivery, or production processes, (ii) monitoring compliance, and (iii) assisting farmers to meet the set requirements. This study focuses on such governance systems of various buyers which operate a DVC with SHFs. The buyers are called lead firms (LFs) of the DVC. The research was concerned with: the rationale and functioning of the business relation between the LF and SHFs, related benefits and costs as well as lessons- learnt, farmers’ upgrading as well as opportunities and challenges which will have to be addressed by the VC actors or call for assistance from for instance GOU and respective support institutions. Research methodology The study explores five case studies: Bee Natural Products (BNP - honey), Sulmafoods (SF - fruits and vegetables), Outspan (OS - sesame and chilli), Ibero (IB - coffee), and Jesa (JE - dairy products). All cases are selected from the agricultural sector. Depending on the sub- sector, the LFs interviewed are processors or traders who sell their products on domestic and/or international markets. The main selection criterion for LFs to be included in the study was that the LF was known to engage directly with SHFs and in a more long-term and developmental manner which could include provision of training, advice, pre-finance, or inputs. The study is based on presentation and analysis of in-depth interviews with LFs and SHFs as well as support institutions and industries (SIs/SIDs) that interacted with the LFs and SHFs and thus - in some way - carried out governance functions in the DVC. SIs are non-commercial players such as government and donor agencies/programmes and NGOs. SIDs are commercial 1 We use the terms SHFs and farmers interchangeably. 4 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  32. 32. partners of the LFs and SHFs and e.g. supply some of the inputs used by SHFs. At times, this supply comes along with embedded services such as product specific or general training and advice. Interviews were conducted using a questionnaire which was developed by the researchers. 2 Qualitative field research by a team which consisted of researchers and research assistants was carried out between the months of April to August 2007. LFs’ interviews were held with the LFs’ management (managing directors, general managers, owners) and/or field coordinators (operations managers, farm managers, purchase managers, field supervisors). For each case study, interviews were also held with two to four farmer groups of between 3-15 people, and three to four SIs/SIDs. 3 The main purpose of the interviews was: (a) to understand the governance structures in place between the two VC actors involved in the actual trade (LFs and farmers) and (b) the interaction of the LFs and SHFs with SIs and SIDs respectively. In this sense t he researchers did not analyze the entire VC but only a particular part of it. Other actors in the VC, e.g. other buyers in Uganda (supermarkets or final consumers) and abroad (importers) were not interviewed. This was beyond the scope of the study. 4 The team did also not provide extensive further background information in the case sections or undertake further follow up research and analysis on issues raised by LFs, SHFs and SIs/SIDs as this would have exceeded the scope of the study. 5 In this sense, the very positions that LFs, SHFs and SIs/SIDs put forward and their links to the theme of VC governance are the findings. A small note: quite often there is an inclusion of (lengthy) quotations of the respondents’ statements in the main report. These quotations are supposed to help the reader to get a personal impression of the statements being made by the respondents. The statements are 2 The questionnaire for the LFs had the follo wing sections: (1) Backg round of the buyer’s business, (2) Basis of the relationship with farmers, (3) Governance of the VC, (4) Farmers’ upgrading, (5) Ro le of other VC actors, especially support institutions, and (6) Outlook regard ing VC with SHFs. The team also had specific questionnaires for supervisors of the LFs. The questionnaire for the SHFs had similar sections (adju sted to the farmers’ perspective), while the questionnaire for SIs/SIDs examined the assistance provided to the VC wh ich forms part of the VC governance. 3 The interview focus was rather on SIs than SIDs. However, in some VCs, there were few or none SI active while some SIDs carried out significant governance work which was then explored through interviews. With some of the SIs, no face-to-face interviews were carried out; only the written responses to the questionnaire were used then. 4 Some months after the beginning of the research activities, the NGO Land O’Lakes (U.S.) provided additional funding which allowed carrying out two more case studies in the dairy sector: Sameer and Paramount. The responsible researcher was William Ekere (Depart ment of Agricu ltural Econo mics and Agribusiness, MUK). The findings of these two cases were not included in the UPTOP report however. The research team plans to publish all the seven case studies at a later point in time if the necessary co-funding can be secured. 5 The team could not further verify the statements made by the respondents. By interviewing a wide range of actors for each case, however, the situation described by the various respondents, if read together, can be seen to be close to ‘reality’ (within the usual limits of a report setting). In a strict sense much of the write up would start with ‘according to the respondent’ - for matters of readability of the report, these phrases are left out most times. 5 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  33. 33. furthermore used to allow the actors at first describe the governance situation in the respective VC and give their views on the relevant matters. We intend to give them a voice by presenting their positions in their own words. This description of the situation by the actors is the foundation of the report; the researchers then analyse (comment and interpret) these statements where appropriate. The respective researcher had the responsibility to make the analysis to his/her best knowledge, understanding and assessment of the situation at hand. 6 Due to limited report space and research time this cannot be done with every aspect raised or after every respondent’s statement that is presented. Some statements are indeed also self-explanatory. 7 The general picture: governance activities of the LF and results regarding SHFs All LFs have undertaken efforts to establish and maintain direct and constant relations with their farmers and build their production capacities and group organization. Below are the reasons that explain the above: (i) the desire to strive for sufficient product quantity and quality in the context of an often weak supply base due to low farmers’ capacities, (ii) control of diseases and pests in the production area, e.g., cattle diseases, (iii) meeting standards of the target market, e.g., traceability requirements in case of organic agriculture (OA), (iv) putting into practice the LF’s Corporate Social Responsibility (CSR) plans, (v) publicity and marketing needs of the LF, (vi) statutory regulation, (vii) market dynamics such as enhanced competition, and (viii) interest in local development around the LF’s rural base (processing plant, own farm, supplying farmers). Most LFs studied realized that having good relations with farmers and their local communities and creating mutual interest in the LF’s success (a win- win situation for the LF and farmers) is a pre-condition for meeting production objectives. In this context, some of the LFs actively tried to enhance: the interest of farmers and surrounding communities in the LF’s business project and prospects, and develop attitudes and behaviours among farmers and community members that could directly and indirectly benefit the LF (higher farmers’ supply, information provision, and loyalty levels) and, in turn, the supplying farmers. 6 It was at times difficult fo r the researcher to interpret a particu lar feature of the governance system based on several hours of interviews with the respective actors only; indeed, every reader (based on e.g. reference to different assumptions about ‘the market’) can read the situation (e.g. respondents’ statements) in different ways. 7 A key objective of the study was to document the actors’ views. By bringing their information and views on paper, we wanted to shed some more light on the issue of governance in DVCs in Uganda. The broad scope of and extensive interviews for the study was intentional in that we aimed at presenting as much as possible the different governance issues in the DVCs. As mentioned, a number of quotes and points raised are thus merely documented. However, we are of the view that even then they can still inform the VC actors and stakeholders as well as the debate in general and stimulate future in-depth research. 6 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  34. 34. Findings reveal: LFs have to consider social aspects such as the community’s sentiments in order to be accepted and grow in a rural setting. In this context, setting up a factory (or project office) in the respective local area helps LFs get security from farmers and other local stakeholders ensuring the factory is not a ‘white elephant’ but protected (in the wide sense) by the relevant actors. A factory is also a booster of trust and confidence as it indicates to the farmers and stakeholders a more formal business approach and long-term commitment of the LF to the locality, especially compared to on and off ‘middle men’. Moreover, it is evident that standards (organic, fair trade, quality and others), or market requirements in general - which necessitate LFs and farmers to be in close contact (beyond spot transaction) have fostered relations and cooperation between the two parties. LFs governance activities offer significant benefits to SHFs in form of: (i) training, advice, inputs and encouragement on matters of production and group dynamics (organization, management, activities, and leadership). Given the report’s findings, a mix of technical and non-technical training topics can be considered essential for successful VCD. Also, the identification of successful farmers amongst the group of SHFs is important. LFs often designate such farmers as lead farmers (LFAs) who act as role models and champions of innovations the LF would like to see adopted by other SHFs. LFAs also help to build and deepen trust and loyalty of farmers with LFs. The use of LFAs was found to be effective for farmer-to-farmer learning. Besides, farmers noted as positive : (ii) the provision of production inputs and equipment as well as related services by the LF 8 , (iii) linking farmers to SIs/SIDs and other farmer groups for training, finance, input supply or professional advice, (iv) providing a stable market and thus incentive for farmers’ upgrading, (v) helping to address farmers’ risks, and (vi) allowing farmers to have access to premium prices. LFs further assist farmer groups in handling internal control systems necessary to meet foreign buyers’ requirements, hence assurance of a market for the produce. LFs such as JE also deduct a farmer’s financial obligation to the respective cooperative (or any other VC player, e.g. a bank, or input supplier), which could be a useful arrangements also in other DVCs. Generally, such service can be particularly useful for agricultural credit, as it provides means for loan recovery at no or limited administrative costs to the financial institution. For specialty markets (e.g., organic markets), the LFs meet the costs of certification which would initially be 8 Services were offered by LF with/without charge, at subsidized prices, or related to soft loans. 7 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  35. 35. prohibitive to SHFs. However, the certificate is issued to and is owned by the LF, which puts SHFs at a disadvantage in case they would want to change the buyer. In such cases of switching buyers, farmers would lose the premium price attached to the certification scheme since they would have no evidence of certification. Farmers in all the 5 case studies, appreciate the relationship with their LF; despite existing challenges in each of the relationships. Farmers stressed the point of learning from the LF and benefiting directly and indirectly from its presence. There are cases where, following the success of the pioneer group of farmers in dealing with the LF, other farmers expressed their desire to join the respective VC - at times however, limited markets do not allow the LF to take extra farmers on board (SF case). The upgrading results of the interaction and cooperation between LFs and farmers are usually significant: respective farmers (not all though) have increased their skills, operate with better processes, expand their fields, achieve higher productivity, increase quantity and improve quality (the latter resulting in lower rejects by the LFs), have better group organization, coherence and activities, or develop a more business oriented mind with incidences of long term thinking and planning. Farmers’ upgrading also shows that farmers can improve their production practices and products yet face a more substantial challenge in terms of technological advancement. Farmer groups that are well linked with a supportive LF are also foundations for setting up SACCOs which are institutions for encouraging rural savings and credit services and can also be intermediaries for the implementation of the Warehouse Receipt System (WRS), which is meant to ease SHFs access to credit after depositing their produce in certified buyer’s store (including farmers’ cooperative society or any farmers’ buying entity). Regarding the above improvements, farmers stated to be significantly advanced compared to farmers who are not in the DVC of the respective LF and do not generally have relations with a buyer. To a significant extent, the better performance of farmers who work with the LFs is due to regular interaction with a buyer who gives farmers more than just payment for their product, but sets supply standards and assists farmers (directly and indirectly) to meet them. The socio-economic benefits for SHFs due to their participation in DVCs and upgrading and hence increased incomes (through better and more regular payment and less quality related rejects) were noted to be: improved quality of life, better health and housing as well as better schools for their children. The differences noticed above offers an important insight to DVC 8 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  36. 36. proponents including state officials: considerably positive effects in terms of development of both farmers and DVCs can be achieved if proponents would support LFs, their farmers and other VC partners in relevant matters of VC development (VCD). Given that the LFs studied were usually the only ‘developmental buyer’ with the most explicit governance system in the locality where farmers were interviewed; one can assume that the above mentioned positive developments would have been less significant and slower (or entirely lacking) in the absence of these LFs and their governance efforts. That is why GOU and its partners have to get more serious about promoting VCD through enhancing LF-SHFs systems. A key message of this report to GOU and its development partners: given the historical context of private sector development (PSD) in Uganda, business practices that fall short of commitment, cooperation, trust and long-term perspective in business with the VC partners (which seems the common practice of the majority of economic actors in the agro- sectors at the moment), undermine or slow down the process of VCD in the country. Besides, LFs still experience deficits among farme rs in terms of: adoption of improved agronomic practices and environmental management, technology advancement, group organization and governance, understanding VC matters and applying a more long-term business perspective, risk taking behaviour, as well as trust, loyalty and honesty (e.g., honouring the payback-scheme for inputs in the BNP case). Due to their investment in the farmers’ capacity and the need to get the farmers’ output, LFs often favour a continuation- approach with the farmers; thus they find it hard at times to actually punish and (temporarily) exclude defaulting or disloyal farmers from the DVC. LFs responses moreover revealed the importance of farmers improving on the soft factors in VC business: communication, commitment, trust, responsiveness, and eagerness to improve. LFs appreciate farmers who can govern themselves. It was also noted that enhanced farmers’ awareness about commercial agriculture (after trainings) does not guarantee that they practice it successfully. The findings indicate that LFs have to be ready to (continue to) invest in SHFs also in future in terms of: innovation, improved inputs, promotion of best agronomic practices, certification costs, or linkage building with SIs and SIDs to mobilize assistance. Such continued support can yield positive returns in the long run. There are high expectations - among farmers and VC stakeholders such as SIs and SIDs - that LFs further increase the scope of their support and enhance VC governance. Respective farmers’ suggestions imply that there is room for governance improvement in every VC studied, in addition to improvements on price issues. To 9 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  37. 37. fulfil some of these expectations and take DVC governance to a higher level, LFs will have to show a continued good, and in some issue areas improved performance on various fronts (not just price) to keep or enhance the contentment and loyalty of the farmers. LFs need to be strong in market expansion (marketing), amongst others, to finance its support measures and make or keep the set up with farmers sustainable. Some of the expectations that are directed towards the LF (e.g., in areas of pre- finance or input provision) are related to the fact that the weak or uncommitted SIs do not provide respective services or assistance. Various challenges in the governance systems studied Farmers emphasized that the LFs’ measures and behaviour is generally different from other buyers or agents operating in the respective areas. Other buyers mostly purchase the produce (sporadically) but do not develop farmers’ production or group capacities. They often prefer to interact with individual farmers instead of groups, and limit these intera ctions to the buying season only. Other buyers are also rather informal (less visible, e.g. have no factory or field office) and less trustworthy than the LFs studied. The study thus differentiates between ‘developmental’ (LFs studied) and ‘non-developmental’ buye rs 9 . Based on the interviews, part of the deficient characteristics of non-developmental buyers are as follows: (i) being less concerned with enhancing farmers’ product quality and volume (due to respective characteristics of the buyer’s product, target market and business vision), (ii) not caring for farmers, (iii) seeing investment in farmers’ capacities not as their role: not as an investment in a sustainable and long-term oriented business structure (DVC) but a waste of the buyers’ resources, (iv) being overwhelmed by the numbers of farmers in their supply system, (v) lacking the competencies and/or motivation to address loyalty and trust issue in the DVC, or (vi) fearing that providing farmers support might strengthen the technical capacities and thus bargaining power of farmers. There is an important effect in this context: the ill-treatment of farmers by some (non- developmental) buyers affects farmers’ perceptions and attitudes vis-à-vis (developmental) buyers that are interested in establishing relationships. It makes the latter’s more difficult and costly. One can compare this externality effect to unregulated environmental pollution: the buyer who has to handle the damage by investing in perception and attitude change of and trust building with farmers is not compensated by the ‘polluter’ (the previous buyer whose 9 A respondent from the state SI NAADS referred to them as ‘sub-standard buyers’. 10 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU
  38. 38. behaviour caused farmers’ scepticism towards buyers in general). This lasting effect in terms of possibilities and ‘costs’ of trust and relationship building between VC actors should be of concern for stakeholders who wish to promote DVCs. The state should look into this externality effect and establish if there is a role for it to intervene. It seems more effective to regulate buyers’ behaviour (and that of other actors) in the first place than dealing with the direct and indirect costs of their actions for the process of VCD afterwards. VCD proponents need to promote appropriate behaviour of buyers (and VC actors in general); this is cooperative, transparent, and long-term oriented behaviour. Thus, what can GOU do to limit ill-treatment of farmers by certain buyers; besides maybe: (a) starting to blacklist VC actors with improper business practices, and (b) promoting good relations between farmers and buyers in various ways? Despite the upgrading efforts and related results of both LFs and SHFs, some LFs face a supply problem (farmers produce too little or sell to other buyers); while other LFs face a market access problem (the farmers’ supply is sufficient but the LF lacks a strong market or buyer). Further, there is conflict of interest between promoters of organic and conventional agriculture with the latter advocating for the use of chemicals. Chemical dealers bring chemicals to the organic project areas where the use of artificial chemicals is not allowed. Chemicals persist in the soil for years and therefore could constrain the wide adoption of organic farming in an area for many years to come, thus affecting prospects of respective organic DVCs. Moreover, almost all LFs suffer (actually or potentially) from the loyalty-proble m: Farmers who benefit from the LFs’ support - in the beginning of and often later on in the relationship - sell to other on-off buyers who can pay a higher price to farmers because they had not invested in their capacities (or supported them in other ways) in the first place. While LFs can reap some loyalty benefits from the initial: (i) ‘eye opening effect’ of introducing a new business to farmers (e.g., modern beekeeping) and/or (ii) assistance more general, this initial boost can fade out to some extent over time with farmers’ loyalty levels - for various reasons - getting lower; before getting up again at times, e.g. when the farmers ‘get burned’ in their transactions with cheating buyers. We refer to these dynamics as ‘loyalty cycle’. Given the competition for farmers produce, LFs will have to find new ways of boosting or refuelling the farmers’ loyalty in later phases of the relationship; often through better prices but better in combination with other measures as well. 11 Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU