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