Civil society and value chains v4

Civil Society and Value Chains

An overview of policies and practices

Edited by Peter Blum Samuelsen

Based on materials from Action for Enterprise, International Federation of Organic Agriculture Movement, Practical Action and World Vision International

October 2013

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Table of Contents

Introduction ............................................................................................................................. 1

The Civil Society Strategy ........................................................................................................ 1

The Danish experience ............................................................................................................. 3

The role in microfinance ..........................................................................................................4

The role in value chains ........................................................................................................... 5

Participatory Market System Development ........................................................................... 6

Areas of intervention ............................................................................................................... 8

Organizing producers .............................................................................................................. 9

Very poor producers ............................................................................................................... 10

References: ............................................................................................................................. 14

1

Introduction

Studies of Danish NGOs promoting income

generation and pro-poor growth highlight that

there is a widespread uncertainty about the role of

NGOs in private sector development and to which

extent the civil society strategy can allow NGOs to

engage with market actors in their efforts to

alleviate poverty (CISU 2012; NGO Forum 2012).

Also there is a sense that the private sector is the

opponent to development rather than a necessary

source of income to the poor themselves. This

paper seeks to clarify the role of the Danish civil

society in the area of income generation and pro-

poor growth based on existing policies and studies

and particularly on the overall approach of value

chain development (VCD) and making Markets

work for the Poor (M4P).

The paper starts out by examining the civil society

strategy of the Danish Ministry of Foreign Affairs

which forms the basis for public NGO financing in

Denmark. The assessment of the Danish policy

environment includes extensive reference to a

paper on the role of civil society in pro-poor

growth initiatives prepared by CISU, an umbrella

and fund for smaller Danish NGOs. Secondly, a

couple of studies on the experiences of Danish

NGOs working with the private sector are

presented. Starting from a short reference to the

role of NGOs in the area of microfinance, the

paper then presents the role of the NGO in the

development of pro-poor value chains including

the planning and analysis process. Interventions

are further specified in terms of a number of areas

in which NGOs can work with lead firms and

small producers and how to organize farmers in

value chains. The paper also touches a number of

ways that NGOs can ensure that working with the

private sector indeed benefits the very poor.

Finally, I would like to stress that this short paper

is only a presentation of relevant policies and

practices in the area of value chain development

as seen from the perspective of the civil society in

Denmark. It hopes to provide an overview but is

not an analysis or a review as such.

The Civil Society Strategy

The objective of the Danish Civil Society Strategy

(CSS) emphasizes the importance of economic

development and the private sector as a central

force of society which the civil society needs to

relate to and engage with. The Strategy states as

follows:

The overarching objective of Danish development

assistance is to reduce poverty by promoting

sustainable development through - broad-based,

pro-poor economic growth with equal

participation by men and women… The long term

overarching objective of Danish Civil Society

Support is to contribute to the development of a

strong, independent and diversified civil society

in developing countries… A strong civil society

creates a necessary balance in the development of

society that would otherwise be dominated by the

private sector’s economic resources and the

state’s wish to uphold supervisory control and

authority. (MOFA 2008, p 7)

The Strategy emphasizes the need for Danish civil

society to work with the private sector for mutual

benefits:

Denmark will support initiatives promoting

dialogue and cooperation between civil society

organizations and the business community ....

The ambition is not simply that the business

community should finance the organisations’

activities. In many contexts, there is much to gain

by mutual sharing and utilisation of each other’s

competencies within technological, technical,

administrative and management-related areas

(MOFA 2008, p. 17 – 18).

Thus, the strategy clearly emphasize that fulfilling

core human rights to food, education, health etc.

requires overall structural change, including the

market conditions. A rights-based approach for

the poor is not just about the development of

democratic structures and the mobilization for

access to public services. Sustainable poverty

reduction requires that the poor are included as

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actors in economic development and that

inefficiency and inequality in market structures

are addressed notably through evidence based

advocacy. Such market structures can be caused

e.g. by lack of market information, conflicts

between market actors such as buyers and

transporters, lack of pro poor policies and

infrastructure. This notion is emphasized by key

organizations such as the ILO, and also in the new

Danish development strategy focusing on rights,

social sectors and green growth.

CISU being a Danish umbrella organization (250

members) administering Danida funding under

the Civil Society Strategy on behalf of Danida did a

study in 2012 on “Poverty oriented growth and the

role of civil society” which clearly concludes on the

role of the civil society in pro-poor growth (CISU

2012):

Civil society organizations are contributing to

poverty oriented growth in a number of different

ways. This is nothing new, and it draws on a

tradition of combining different approaches to

development – i.e. a rights based approach with

growth for the target group, or a capacity

building approach with supporting growth for

local cooperatives.

Civil society has a potential that reaches beyond

that of the private sector. Our approach and our

purpose are different – and this gives us a

number of advantages when it comes to working

with marginalised and vulnerable groups which

we simply have a better chance of reaching.

Civil society has a history and a tradition of

building on the local context and starting with

the people and building from there. This

approach is valuable and has a set of inherited

advantages when it comes to promoting income

generation that is distributed and reaches

marginalized people.

Civil society in Denmark and south should

become better at looking at synergies with the

private sector where it makes sense. At the same

time it is important to acknowledge that now all

CSO’s should be collaborating with PS and the

role of “watchdog” which is not that apparent in

this investigation should also be recognized and

supported.

Civil society organizations should build capacity

regarding access to markets and value chain

approaches and entrepreneurship training in

south. CISU could play a role in this.

CISU should continue to work with poverty

oriented growth and through exchanges of

experiences among members and development of

promising practices, enhance and support the

knowledge and initiatives among members.

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The Danish experience

According to a study done by NGO Forum on the

experiences of Danish NGOs in the area of growth

and employment in 2012, seventeen percent of

Danish NGOs allocates between 20 and 50% of

their budget for activities that seek to promote

growth and employment in developing countries.

Other seventeen percent allocates more than half

of their budget (NGO Forum 2012). The vast

majority of NGOs estimate that there is a growing

trend for private sector orientation in the NGO

environment (72%), the Danish NGOs should do

more to prioritize growth and jobs (67%) and that

the Danish NGOs should seek out business

partnerships in development work (61 %). At the

same time, there is a growing interest among

Danish companies to involve NGOs in their work

in the south.

According to this study, Danish NGOs working

with growth and jobs typically include: (1 ) the

strengthening of civil society organizations in the

South ( 2 ) promotion of income-generating

activities through training and microfinance ( 3 )

cooperate with companies in donor countries (4 )

advocacy around public frameworks and

standards for business operations in the south.

Danish NGOs are not clear about the technical

area and its development in the years to come.

Market knowledge and business development is

far from the Danish NGO competence. Danish

companies are interested in CSR and sustainable

growth, but have difficulties integrating the social

dimension in the south. Danish NGOs often have

problems in cooperation with companies due to

divergent objectives. Few Danish NGOs play an

active role as a watchdog and advocate for

responsible framework conditions and sustainable

growth model.

According to the CISU study mentioned above,

working with poverty oriented growth is not new

to Danish CSO’s and their partners. It is

something that they have been doing for long, as a

natural part of a strategy for working with poor

and marginalized people. The participating CSOs

in this study promotes growth that is distributed;

CS has a multitude of different strategies for

working with poverty oriented growth reflecting

the very diverse context that CS works in; CS in

most cases connects the growth orientation with

working with organization, capacity building,

rights and advocacy; CS has an outreach beyond

that of the private sector. The challenges are that

CS does not always base work with income

generation on proper market analyses and

business plans; CS is not good at measuring how

to contribute beyond the “good stories”; CS can

have difficulties in engaging with the market, and

is in some cases still not perceived as a relevant

and competent stakeholder; CSO’s shall be careful

not to end up as a mere service provider, without

linkage to rights, capacity building (CISU 2012).

.

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The role in microfinance

Danish Forum for Microfinance has issued some

basic microfinance guidelines (DFM 2011) for its

members. These guidelines are structured into

three sections: provide, promote, protect. They

describe the different roles a Danish organisation

can play when working with microfinance. The

determining factor behind the decision on anyone

of these roles is the analysis of the market demand

and supply situation.

Provide: A provider of microfinance supplies

financial services either directly to the client at the

retail level or via wholesale loans and equity

investments. Providers of microfinance include all

types of organisations providing financial services

to clients as well as the institution providing loan

capital to these organisations in terms of grants,

revolving funds, loans, or equity investments.

Promote: An organisation promoting

microfinance does not provide financial services

neither directly at a retail level nor indirectly as

wholesale loans. Promoters seek to give

beneficiaries access to financial services by

building on existing structures; by linking with an

MFI to reach a specific target group; by improving

service provision through capacity building and

training; or by establishing community based

structures, where financial services are offered

through independent savings and credit groups.

Protect: To protect refers to organisations

seeking to protect microfinance clients by

advocating and supporting implementation of

consumer protection principles; by providing

information and education about the costs and

benefits of financial services; and by advocating

for the establishment of proper national

regulations and support systems.

The figure below is a visualization of this.

Loans disbursed

CLIENT

Savings deposited and

recycled to fund portfolio

(Banks, MDIs, SACCOs, and

savings and credit groups)

IMMEDIATE

PROVIDER

PROMOTE

PROTECT

SECONDARY

PROVIDER

Flow of funds

Other relation

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Public sector Private sector

Donor Facilitator(project, NGO)

Lead Firm

Lead Firm

Lead Firm

Facilitation of Market-based Solutions

Among VC Actors

MSME

MSME

MSME

MSME

MSME

Legend:

: market-based solutions

: facilitation activities

The role in value chains

NGO Forum's study on growth and employment

also points to international experience amongst

NGOs. The reference is mainly to some specific

British, American and Dutch experiences with

market-based approaches or "Making Markets

Work for the Poor" (M4P), which has wide

international support from donors, including

Danida through The Donor Committee for

Enterprise Development. M4P highlights that the

poor are depending on market systems for their

survival. By understanding why market systems

fail to include the poor on fair terms, NGOs can

facilitate structural improvements in market

conditions and thereby help to ensure sustainable

change to the livelihoods of the poor.

Typically, NGOs fail to carry out in-depth analyzes

of market conditions before they take action

(CISU 1989). This can result in market distortion

e.g. by providing subsidized services that already

exist on the market thereby undermining the long

term availability of such services. Without market

analysis, NGOs also tend to promote products

(crops or handicraft etc.) that fail in the market

and thus create more harm than good to the small

producers. This also goes for microfinance

services which sometimes is provided by NGOs at

subsidized rates and without due assessment of

the clients demand and capacity to repay.

Before considering any form of intervention to

support micro enterprise, NGOs need to analyze

the markets in which their target group is

operating, and on that basis identify sustainable

and market-based solutions that meet their rights

(CISU 1989). NGOs should not be commercial

actors, but may work temporarily as change

agents for sustainable change by supporting

mobilization and organization of the target group

or by facilitating private sector collaboration,

advocacy, technical assistance etc. The following

graph presented by AFE depicts the role of NGOs

as the facilitator (AFE 2012):

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Participatory Market System

Development

Civil society with the agenda to foster pro poor

economic development can play an important role

at every step in the development of value chains. A

number of leading international NGOs,

government and UN agencies are promoting best

practices in the area of pro poor value chain and

market development. Danish Forum for

Microfinance has teamed up with Practical Action

who has been developing an approach called

Participatory Market System Development

(PMSD) to make markets more inclusive, reduce

poverty on a large scale and protect the

environment (Practical Action 2013).

PMSD has evolved with the frameworks of value

chain development and Making Markets Work for

the Poor (M4P). PMSD is designed to bring all of

the key people within a particular market

together. These people are known as stakeholders,

or market actors. The PMSD process works to

build trust and a joint vision of change between

these market actors, and helps them to collectively

identify obstacles and opportunities affecting their

market system.

NGOs trained in PMSD techniques support the

group of market actors to come up with joint

strategies and action plans that will overcome

these obstacles, and take advantage of potential

opportunities to improve market conditions for

everyone. It is based on Practical Action’s field

experience across Africa, South Asia and Latin

America, and four decades of learning about the

best ways to build sustainable enterprises in rural

contexts. It is based on three broad principles:

participation, systems thinking, and facilitation:

Systems thinking: Markets are complex

systems that adapt to new information

constantly. They are made up of large

numbers of actors who are connected to one

another and whose decisions are influenced

by, and have an influence on each other.

These “complex and adaptive” systems behave

in ways that achieve more than the sum of

their parts. In other words, we cannot predict

how the system will behave by looking at the

individual people or parts; we need to

understand the relationships and the

interactions.

Participation: Applying systems thinking to

markets forces us to recognise that no single

actor can determine how the system will

change. Some very powerful actors can

influence the trends or general direction of

change, but how this change manifests in

reality is a product of the decisions of all the

actors. As a consequence, if we want to

influence how a market system develops, we

need to bring strategic players together to gain

an understanding of the whole system, to

jointly assess blockages and opportunities and

to implement collaborative strategies and

actions that will improve how the system

functions.

Facilitation: Facilitation can be understood

here as creating the conditions for public and

private market actors to drive change

themselves. If we want to become effective

facilitators, we have to therefore avoid

becoming actively involved in the market as

market actors. Facilitators can provide

support, and even use subsidies as a way to

build trust and joint visions, and to contribute

to the introduction and dissemination of new

ideas, practices or business models; however

this must always be as part of an exit strategy.

Good facilitation is at the heart of

sustainability, because it is underpinned by

the ownership that the key actors have over

their own process of change.

The process

The above principles shape how we work on the

ground. Whilst the reality of the process is messy,

organic, and interactive, the following describes

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the typical sequence of steps that field staff follows

when carrying out PMSD.

The PMSD process starts with field staff analysing

factors such as the potential to reach those most in

need, and a particular market’s potential for

growth, so that they can establish which markets

within an area (for example, dairy or rice) provide

the best opportunities for reducing poverty on a

large scale. The next step is to get a better

understanding of that market system, and the

problems within it, by mapping out how the

system fits together, and researching each

connection and market actor in detail.

Facilitators then work to engage the key public

and private actors within that market who can

drive change – i.e. actually make the system work

better – and find “hooks”, which are essentially

just a set of convincing incentives that can

motivate them to attend participatory workshops

with all the actors within the market chain.

At the same time, the facilitators work to empower

representatives of the marginalised actors so that

they can engage with the rest of the actors in a

meaningful way in these participatory workshops.

By improving their business language and helping

them to better understand the market, it puts

them on a more capable and even footing to have

an influence on how the process of change will

take place.

Within the workshops, tools and activities are

used to help the actors to visualise the market,

and staff facilitate the market actors in

understanding where the opportunities and

blockages are within the market system. It is

through these interactions that the market actors

can develop a joint vision, to build trust, and to

coordinate their actions and collaborate, to

achieve positive changes within the market

system.

As facilitators we support the actors throughout

the process of strategic thinking, planning and

action, in ways that help them to overcome

potential conflict and risks. Throughout this time,

we work to ensure that they steadily gain

ownership of the process, so that once our

intervention has come to an end, they can

continue driving change in the future without us.

These steps are collectively known as the PMSD

Roadmap. The PMSD Roadmap is not a recipe

that has to be followed step by step. Rather, it is

intended to provide practitioners with the tools

and inspiration to build the capacity of their staff

and partners to become effective facilitators of

PMSD. The following flow chart depicts the steps

as developed by Practical Action:

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Areas of intervention

NGOs can help address barriers to pro-poor

growth through facilitation of change in a number

of areas such as access to markets, sale of products

or services needed by MSMEs, procurement from

MSMEs, access to finance, technology /

operations / product development, management

and organization, resolution of policy and

regulatory issues. Action for Enterprise presents

seven areas of value chain constraints within

which NGOs can facilitate and support Lead Firms

(LFs) or value chain actors to initiate

interventions that can address these constraints

on a long term market based and sustainable

basis. The following list holds a number of

examples of interventions (AFE 2012):

1. Access to Markets

participate in trade shows or exhibitions

visit potential buyers

receive visits from potential buyers

gain certifications (organic, ISO, HACCP)

develop websites / online marketing

conduct market assessments and develop

marketing strategies

2. Sale of Products or Services to MSMEs

develop demand for their MSME products

or services

conduct market research for MSME

markets they sell to

adapt products or services to specific

needs of targeted MSMEs

develop/improve distribution networks

develop alternative financing or payment

mechanisms that promote MSME access

to their products/services

3. LF Procurement from MSMEs

identify MSME suppliers

develop outgrowing operations

build capacity of MSME suppliers through

training, technical assistance,

demonstrations, field days, etc

develop aggregation models /

procurement models (for purchasing in

economies of scale)

develop credit programs for MSME

suppliers

develop seed multiplication programs and

introduction of higher yielding varieties

(seeds can be provided/sold to LF’s

MSME suppliers)

4. Access to Finance

create linkages with financial institutions

work with financial institutions to adapt

their lending products

business plan development

develop tripartite arrangements between

LF, banks and MSME producers they

source from

develop crop insurance schemes with

insurance companies

5. Technology/Product Development

access technical specialists (e.g. product

design, processing, storage, etc.)

conduct learning/exposure visits to

companies with exemplary operations

conduct visits to suppliers of needed

equipment and inputs

develop improved IT skills

optimize product development processes

conduct strategic review of product

portfolios

develop R&D capacity

identify sources of finance for new

equipment and materials

6. Management and Organization

develop improved management

information systems

develop business plans

develop management systems (financial,

inventory, HR, administration etc.)

develop quality control / quality

assurance / traceability systems

build capacity of staff

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7. Resolution of Policy and Regulatory Issues

establish or revise industry standards for

products or services

establish or revise industry codes of

conduct

create or strengthen coalitions or

associations

lobby for specific changes in policy or

regulation

carry out industry-wide assessments, etc.

Organizing producers

NGOs facilitating pro-poor value chains typically

help producers to organizing themselves in

groups, cooperatives, associations or similar. This

is to ensure economies of scale, low transaction

costs, sharing of risks, collective learning,

bargaining power, as well as to increase social

capital and offset shocks. Producers can also be

organized and contracted by a company or trade

house which buys and sells the product. Both set-

ups have their advantages and disadvantages. The

following outline of pros and cons is from the

Organic Business Guide (IFOAM 2010):

Producer cooperatives

A producer cooperative is a marketing

organization that is owned by the farmers who are

the members of the cooperative. The management

and staff hired by the cooperative organise

production, extension, the internal control system

and sales, and possibly also processing of the

product. As the cooperative is the owner of the

certificates, it is free to sell to whichever buyer it

wants. The advantages of a producer-based set-up

are that farmers are involved in decision making

and that the profits of the operation belong to

them. Equally, in case of losses farmers risk

getting paid less than what had been planned.

As it is their own organisation, farmers could be

expected to adhere to the rules and to sell their

produce to the cooperative only. This is not always

the case. Many cooperatives lack management

skills and entrepreneurial spirit. Due to the

cooperative structure, decision making may be

slow. In addition, there is a tendency that

imbalanced focus is given to farmers' interests,

especially when it comes to pricing, which can put

the profitability and competitiveness of the

operation at risk. Quality differentiated pricing is

not always possible as farmers expect the

cooperative to take all produce for the same price.

Inefficiently managed cooperatives can be quite

expensive intermediaries through which farmers

may earn less than when selling to private buyers.

There is also a risk that farmers do not really have

a say in their cooperative, because board members

may not represent their interests. Not all board

members always understand how the business

works.

Contract farming

A second model is that a company contracts

farmers for the supply of raw material. It

organises input supply, extension, certification

(ICS), first level processing and sales. As the

company feels that they take all the risks, they also

take the profit. Any commercial enterprise will

have a strong risk reduction strategy. What that

means for the farmers is that the company will

buy the produce for as little premium as they can

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get away with. They may be willing to share some

of the profits after the business is done to build

loyalty among the farmers, but this is the

exception rather than the rule. As a result, farmers

often sell a significant part to other buyers (at

least the low quality part). They may also try to

link up with other companies that can offer a

better price as they did not have to invest in the

development of the farmers.

The advantages of a company set-up are that the

entire operation is strongly focused on

competitiveness and profitability. The owners

therefore have an interest in hiring a professional

director and staff, and decisions are usually taken

in a quick and flexible way. If they are not efficient

and competitive and profitable, they usually do

not stay in business for very long.

Which structure to choose?

Because of the traditional standoff between

farmers and buyers, it is necessary to look for new

ways of cooperating. Unfortunately, there are still

too many mutual apprehensions between

entrepreneurs and companies on the one side, and

farmer organisations and development agencies

on the other side. Many development agencies and

farmer organisations have a very exclusive focus

on the farmers.

On the other hand, companies tend to focus too

much on their own profit rather than on paying

farmers a good price. As their main business is to

trade, they may not be very familiar with

agricultural production. Organizing farmers,

training and guiding them in organic methods,

and building internal control systems which

involve farmers is alien to many entrepreneurs.

These are two very different worlds, and require

quite different sets of skills and mind sets. A

reasonable division of tasks could be that the

producer organisation is in charge of production,

extension, ICS and bulking, and then sells the raw

material to a company that covers trade finance,

packaging, marketing and export. Certain

functions like the provision of inputs, quality

management and first-level grading can also be

initially covered by the company, and then

transferred to the farmer organisation.

Whatever set-up you chose, it is crucial that the

management is professional and experienced,

financial matters are managed in a professional

way, the overall responsibility for the ICS is clearly

defined, skilled staff is in charge of sales and

marketing.

Exit strategy

Development agencies need to have a clear exit

strategy for their support to organic initiatives.

They need to communicate clearly to the partners

in which way and for how long they are going to

support them. The exit strategy needs to ensure

that by the end of the project intervention

businesses are established that are institutionally

and economically sustainable. The support should

therefore not only be limited to funding part of the

operational costs and investments, but also to

ensuring that necessary capacities and skills are

developed, that the entire value chain is

functioning well, and that an enabling

environment is created. Some level of donor

coordination is needed to avoid donors coming in

where others go out because of lack of progress.

Very poor producers

For each step in the value chain development

process, NGOs / civil society has a critical role.

The following list of specific roles comprises

examples of what NGOs could do to facilitate the

process for sustainable pro-poor value chain

development.

World Vision has published a field guide with FHI

360 and USAID support entitled “Integrating Very

Poor Producers into Value Chains Field Guide”.

This guide specifically focus on this step of

addressing the many constraints of very poor

producers (Limited capacity and resources;

Vulnerability and over-indebtedness; Strong risk

11

aversion; Inadequate access to products and

services; Limited mobility and freedom; Unequal

distribution of entitlements; Limited knowledge of

market; Social exclusion/lack of empowerment.

The guide includes lots of ways of working with

producer groups helping very poor producers to

overcome barriers to market entry, share assets,

information, and risk, as well as obtain easier

access to a variety of services and inputs.

Operating as part of a group can build the

confidence necessary to be active participants in

markets (WVI 2012).

A. Effective buyer and supplier relationships

The NGO should facilitate linkages with buyers

and suppliers that:

facilitate the development of long-term, win-

win business relationships, rather than

focusing on increasing once-off sales

facilitate continued access to appropriate

information – such as what appropriate

quality standards and specifications are and

how to meet them, knowledge on how to use

inputs most effectively, or how to use specific

equipment to improve a product in a way that

the buyers want

facilitate beneficial embedded service

arrangements – such as linkages to businesses

that prepay for crops before they are

harvested to reduce initial cash needed by

very poor producers

support everyone in getting higher profits,

more stable income, or more consistent

income – such as ensuring that producers can

earn a living from what they get paid while

buyers are still able to make enough profits to

stay in business

support processes that increase trust – such

as taking small steps to slowly demonstrate

trustworthiness from both sides

B. Embedded support from buyers and

suppliers

Support services provided by buyers and

suppliers to very poor producers in return for

their business are known as ‘embedded

services.’

Buyers provide a much-needed service to

producers, with the expectation that the

producers will sell the higher quality products

in return.

Suppliers provide a much needed service to

producers, with the expectation that the

producers will buy their inputs, resulting in

increased sales.

Producers adopt the new technology or

practice, or make the new investment, feeling

secure that they will have a market in which to

sell their improved goods at a fair price.

These services aren’t entirely without cost:

buyers and suppliers will cover their costs by

paying a slightly lower price for the products

or charging a slightly higher price for the

inputs.

If done well, embedded services can be a very

useful win-win situation for producers and

buyers in terms of access to finance, training

and skills building assistance, certification /

compliance and technical assistance, market

access, assured supply and demand,

equipment access and maintenance.

C. Trust between very poor producers and

their buyers and suppliers

Trust can be built through:

Continuous dialog between producers and

other market actors

Low risk and early return activities to show

that each side will follow through on

commitments.

Incrementally expand depth and outreach as

stakeholders become more open.

Repeated exposure to other businesses and

cross visits between each partner in the

relationship

Contracts: Formal, written agreements that

stipulate all aspects of the business

relationship

Checks and balances: If there are government

or NGO officials that very poor producers can

go to if they feel taken advantage of by

suppliers or buyers, then they may feel more

trust

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Recognise that it takes time: Building real

trust and long-term business relationships

often take years.

Price incentives, payment terms, and other

support for producers

Loans to producers: Providing loans and

training to farmers will tie them to the

contract. Loans are used by the producers to

buy inputs, and training is provided by the

buyer up front. When it is time to sell, farmers

are obligated to sell to the buyer because of

the loans they received.

D. Learning & information flow to and from

buyers & suppliers

Ensure access to explanation and

interpretation of information.

Ensure information is presented visually

where appropriate.

Support access to other selling options.

Support system that provides ongoing,

updated information.

Facilitate access to appropriate

communication technology where

appropriate.

Support access to information in close

proximity to producers.

E. Working with the private sector

NGOs should select Lead Firms that have the

following qualities: They should ideally be lead in

innovation and technology; have links to large

number of poor producers; able to provide

technical assistance, credit, inputs, and other

support as part of the business relationship. The

LF is financially stable, can make the needed

investments, and are willing to be patient in

waiting for results to materialize. They have

strong demand for their products to ensure a

steady market for the producers; are respected

thought leaders in the business community; have

a good business reputation; can influence others

in the industry to enter into similar relationships

with producers; have shown interest in working

with very poor producers.

NGOs can use smart subsidies in order to build

capacity or incentivize other businesses to provide

products and services to very poor producers on a

long-term, sustainable basis. Types of subsidies

include: Cost share, Vouchers, Community-level

assets, Cash or asset transfers. Subsidies should

ideally be unknown to the producers, mimic real-

life market interactions, gradually withdraw or

phase out (e.g. slowly decreasing value of

vouchers), decrease risk to businesses of taking on

full cost or taking time to build demand for

products, only used when absolutely necessary,

used to increase the supply of and demand for

products and services, used to build human and

social capital to enable the very poor to start

participating in markets etc.

Market offer – dialogue and Partnering with the

private sector: Practitioners often need to

facilitate initial relationships between producers

and their buyers or suppliers. This involves

identifying key businesses to partner with, sharing

the vision of a partnership, and supporting the

initial steps in partnering. This initial support

could comprise some type of shared investment by

the NGO in order to incentivize businesses to start

acting in a certain way or taking on certain roles.

Approaching businesses about this type of

investment and partnership is often referred to by

practitioners as “making a market offer.”

Contracting for very poor producers with their

buyers and suppliers in the form of immediate

sale, forward contracting, regular sub-contracting,

outgrower schemes, contract farming etc. Such

contracts should produce positive results quickly,

strengthen social relationships (e.g. savings

groups), include a clear understanding of

expectations and how relationship will work, take

into account informal rules and norms.

F. Effective producer-to-producer linkages

Linkages between producers can include linkages

promoted by a leading producer, or linkages

through formal producer groups, informal

producer groups, or cooperatives / federations.

NGOs should ensure that producers encouraged

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and incentivized to link with other producers to

leverage easier and cheaper access to buyers,

suppliers, and support through benefitting from

economies of scale; improve bargaining power by

negotiating with traders or transporters as a

group, or exerting increased bargaining power

when they buy or sell in bulk; lower costs (for

buyers and for the producers), through sharing

transportation costs to be able to access more

formal buyers, and by-pass informal traders, who

often pay very low prices, or deliver products from

multiple producers to one central point; improve

quality control by obtaining support in meeting

appropriate quality standards to increase

efficiency; increase production because they can

afford the necessary inputs through bulk-buying;

access savings or credit such as lump sums of cash

through savings or credit, or loans from financial

institutions; purchase equipment and services

together etc.

G. Increase trust

Within a producer group setting, encourage clear

communication of members’ roles and

expectations, clear understanding of the group’s

goals and vision; shared vision of a business plan;

conducting business-like meetings, following a

clear agenda and having written minutes; regular

rotation of group leadership to lessen potential for

corrupt practices.

H. Addressing limited ability to take on risk

Encourage multiple sources of income, so that if

one fails, or is not as lucrative at a certain time,

there will still be income coming to the family

from another source; promote crops for

consumption and the market; start with small, low

risk activities; connect to markets with low

barriers to entry and low risks; focus on activities

with short-term, frequent returns, rather than

having long periods without income etc.

I. Addressing limited access to resources

NGOs need to work through local businesses and

institutions to allow very poor producers to access

provisions from safety net programs – such as

advocacy with government or NGOs to include

extremely poor families in their safety net

programme; form groups to access government

services – such as Ministry of Agriculture

extension programs; use in-kind rotating schemes

such as seed banks or animal banks. At harvest

time or after reproduction of animals, the initial

beneficiary has to ‘pay back’ the assets received,

with interest, to other members of the community

etc.

J. Addressing lack of confidence

Choose initial activities that are simple, have a

high chance of success; foster social relationships

that can be called on in times of need, building on

what already exists to improve self-esteem,

confidence, and opportunities for reciprocity,

rather than assuming social exclusion. Build basic

skills such as training in functional literacy and

numeracy that build confidence and prepare very

poor producers to better participate in markets;

build understanding of the market such as

building group capacity to access and maintain

information on prices, trends, and buyers to

improve confidence in bargaining with buyers.

K. Addressing exclusion of women

The NGO can try to reduce the cultural barriers to

women’s participation by sharing market

information using communication channels used

by women; identify labour-saving technologies;

encourage community discussions amongst men

and women about gender inequalities and the

barriers for women; promote value chain selection

that favours women’s participation with lower

barriers to entry; link women with support

structures and networks that build their social

capital, skills, and business confidence; facilitate

women-only meetings where appropriate if it is

not possible to create women-only groups etc.

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References:

AFE 2012: Value Chain Program Design:

Promoting Market-based Solutions for

Micro, Small, and Medium-Scale Enterprises

(MSMEs)

CISU, 2012: Poverty oriented growth and the role

of civil society - Report based upon CISU’s Danish

member organizations experiences

DFM 2011: Danish Forum for Microfinance,

Microfinance Guidelines, Lone Søndergaard,

IFOAM 2010: The Organic Business Guide,

Developing sustainable value chains with

smallholders

NGO Forum, 2012: Vækst og Beskæftigelse.

Undersøgelse af danske miljø- og udviklings-

NGOers erfaringer med vækst og

beskæftigelsestiltag og eksempler til inspiration

Practical Action 2013: The PMSD Roadmap –

facilitating market systems. See also website:

http://practicalaction.org/pmsd

Project Counseling Services 2000: Handbook on

Income-Generating Activities for the use of

Danish NGOs and their partners in the South

Project Counseling Services 1989: Review of

Income Generation activitis of Danish NGOs

WVI 2012: Integrating Very Poor Producers into

Value Chains Field Guide