Welcome to: What works for smallholders and agribusiness? The Webinar will start shortly

1. Welcome to: What works for smallholders and agribusiness? The Webinar will start shortly Jessica Graf Hugh Scott Caroline Ashley Join the discussion on Twitter #Smallholdersuccess

2. What works for smallholders and agribusiness? Speakers: Jessica Graf: Network Partner, Hystra Hugh Scott: Director, African Enterprise Challenge Fund Webinar Structure: Quiz & Insights on 5 topics Questions and discussion Join the discussion on Twitter #Smallholdersuccess Type your questions in ‘chat’ anytime

3. The question this webinar seeks to answer: what works? Many productivity-enhancing products and practices existthat could sustainably change the life of small-scale farmers …but they struggle to reach widespread and consistent adoption Unpredictable personal circumstances Lack of cash Lack of cushion if harvest fails 1 billion larger-scale farmers Risk aversion 1.5 billion small-scale farmers Novelty of product Technical assistance Equipment and input provision Purchase of produce

4. Analysed 15 pioneer organizations working in15+ commodities with 2 million small-scale farmers ∂∂ ∂∂ ∂∂ Empresa de Comerciali-zaçãoAgricola (ECA)

5. The AECF’s has a large portfolio of agribusiness and related projects Adaptation30 Renewable energy30 Financial services20 Agribusiness122 2014 Information6 $100m+ net benefit to1.1m smallholders

6. And now for the Quiz… We want to hear from you too! Click on the link in the chat box >>>>

7. QUESTION 1:CAN BUSINESSES MAKE MONEY BY WORKING WITH SMALL FARMERS (as sellers or buyers) • No • Yes, but in a limited fashion • Yes, and often in significant ways

8. The organizations working with small farmers also derive significant benefits Additional net margins for buyers of produce* (as % of sales) Increase in number of small-scale farmer clients for sellers of inputs/equipment *On top of margins made at the processing plant or dairy hub level ** Premium on price of product sold (e.g. market premium fetched by the Kenya Tea Development Agency factories on Mombasa auction) *** Better quality of produce collected from farmers, yielding higher returns in processing (e.g. JAIN onions have higher solid content)

9. The AECF’s agribusiness projects exhibit strong revenue growth Average project revenue by sector by project age (all active projects, 2014 data)

10. QUESTION 2:WHAT IS THE SINGLE BIGGEST LEVER TO INCREASE THE PROFITABILITY OF FARMERS? • Training on better agricultural practices • Provision of a new technology • Higher selling prices (from certification or value chain disintermediation) • Savings (e.g. on inputs purchase)

11. Only projects that offer productivity-enhancing inputs or equipment manage to increase farmer income by more than 80% 140%

12. The smallholder as a producer or a consumer

13. Extent of value chain integration Agro-processing and marketing and distribution $200 Average net benefit ($/farmer) per project Outgrower $100 Finance Input Supply InformationE.g. ShambaShape-up,515k households $58 net benefit 5k 10k 15k 20k Average number of farmers benefitted per project (outreach)

14. QUESTION 3:WHY SOME PROJECTS STRUGGLE TO REACH HIGH PENETRATION? • Small farmers cannot afford to pay for expensive new technologies/ inputs • Farmers believe that the gains they could make by evolving their practices are not significant enough • Farmers are risk-averse yet not given any insurance/guarantee against failure • Other

15. Yet, it is neither the prospect of important gains nor the limited need for upfront investments that drive penetration *In some projects implemented by buyers, farmers may side-sell part of their production to other buyers, leading to a greater actual original net yearly income and net increase than reported here

16. Ability to easily quit drives penetration 16

17. QUESTION 4:HOW MUCH DO ORGANIZATIONS SPEND ON TRAINING FARMERS (as % of product bought from or input provider’s sales to farmers)? • More than 30% • Between 20 and 30% • Between 10 and 20% • Between 1 and 10%

18. Level and intensity of training provision do not correlate with farmers’ improved productivity * Includes costs of deployment (e.g. transportation) and salaries of field staff (such as extension officers) spending a large part but not necessarily all of their time providing training and other technical support to farmers 18

19. But when done well, training drives higher profits and incomes for both buyers and farmers Additional net margin for buyers per $ spent in training Additional farmer income per $ spent in training $0,4 $4,4 $4,5 $4,5 $1,7 $8,2 Providing technology and training Providing only training

20. QUESTION 5:WHAT ARE EFFECTIVE STRATEGIES TO DEAL WITH “DEFAULTERS”? • Offering more stable incomes • Increased transparency and convenience in transactions • Enforcing tough penalties • All of the above

21. Defaulters and side-selling Kate Holt (KPMG IDAS)

22. Offering minimum prices (hence predictable income) or payments smoothened over time helps reduce side-selling Smoothing income over price variations Sustainability premium turned into a savings plan • Certification premium originally paid during planting season • As season ends, income is low, but investments needs are high (inputs, labor, school fees) • Farmers requested that the premium be paid in a lump sum at season’s end • Farmers value support in smoothing out their annual cash flow • Transparent seasonal price bands give: • Extra margin to Margarita if price is high • Extra cushion to farmers if price is low • Increased visibility allows farmers toinvest for the long-term

23. Convenience and transparency also are effective incentives to reduce side-selling Percentage of registered farmers delivering cocoa Kilo of cocoa delivered per farmer +19% +84% 23

24. Credible penalties can also be effective at improving loyalty Side-selling: 0% Churn: 5% Loyal farmer’s wife Farmer engaging in side-selling $ • Exclusion from program for life • Loss of bonus for entire period • Own end-of-year bonus (2% of annual sales) • Share of bonus of disloyal farmers Credibility of threats insured by the fact that Margarita can easily source elsewhere 24

25. A wealth of experience and findings…

26. AECF The AECF: Seven years, seven million people Key findings on impact • If your target is numbers of HH benefiting then fund input supply companies, information and TA providers, and financial service providers • If your target is benefit per HH then focus on out-grower schemes with full engagement. • Pareto rule applies – 80% of impact coming from 20% of projects – can we identify them ex ante? • Livestock projects – dairy and poultry particularly – have a greater impact per HH than crop projects (on average…) • Have patience – to see the real impact of agribusiness projects you need time • Impact correlates almost directly with revenue (EBITDA relationship takes longer to show) • Jobs is becoming the focus of funders – need to calculate this differently • Huge opportunity to learn from the AECF’s portfolio – we must not waste this opportunity – the 2014 Impact Report is just a start (we hope..)

27. The AECF: 8 different funds; 20 competitions; US$244m; over 200 projects in 25 countries; AECF Key findings and questions on process • Use a “last hard number” approach to keep impact verification costs down (revenue is the best last hard number) • Country and topic based competitions offer greater potential for systemic impact • Continent wide competitions can identify and support the most innovative ideas • Aim to start races rather than pick winners • Disruptive innovation (triggered by technology and/or business model) is key • Use of different financial products (grants, loans, guarantees, equity) or just grants with a stronger Connect? • Matching funds and leverage – not the same thing – which matters? • Competitions to solve particular challenges?

28. The AECF 2014 Impact Report Our report present how the AECF’s portfolio of 160+ projects across Africa is having a significant impact on the lives of rural poor people by addressing some of the continent’s most urgent development challenges. Impact Report: http://bit.ly/1QFZvpy Review: bit.ly/AECFEdChoice

29. What other questions can you get answered in Hystra’s report? Review: bit.ly/HystraEdChoice • When entering a new area, which type of farmers invest into first? • What player is best positioned to pay for farmers’ training in complex supply chains? • How can ICT change the cost and impact game? • To efficiently and effectively reach out to a large number of farmers, what is best: Working with farmers’ groups or through intermediaries? • What proportion of projects have the farmers loyal and committed and why? • What drives farmers to leave an intervention aiming at making them more productive? • Do cooperatives actually manage to make farmers richer? • What proportion of the fair trade premium arrives to farmers? • How to develop long-term, win-win arrangements with farmers? Full report available on www.hystra.com Contact: Jessica Graf, jgraf@hystra.com

30. Thanks to our speakers for some evidence and answers… Evidence of benefits to both farmers and business What works for smallholders? • productivity-increasing technology • value chain integration • Returns on training • Strategies to increase adoption in the face of risk • Strategies to reduce default

31. Discussion Visit the webinar page for details and resources: http://bit.ly/Smallholder Join the discussion on Twitter #Smallholdersuccess

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