Isilda Nhantumbo, IIED Overview of different business models for private investment in agriculture 1 IIED for Pan-African Parliament Seminar- Making Investment.

Isilda Nhantumbo, IIED

Overview of different business models for private investment in agriculture

1IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

IIED, International Institute for environment and Development

2

Independent international research organisation (1971) specialising in linking local to globalOur mission is to build a fairer, more sustainable

world, using evidence, action and influence in partnership with others.

Climate Change – mitigation (REDD+) and adaptationNatural resources – Land, Forests, Agriculture, Water,

BiodiversitySustainable Markets –positive social, environmental and

economic outcomesGovernance Human Settlements

IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Why inclusive business models (in agriculture investment) are important for Africa?

Strong rights to resources – land and water Diminish conflicts with local community Promote ‘win-win’ solutions – Africa’s Green

Revolution need to engage smallholders in the mainstream economy!Investors increase profit, contribution to national

economyCommunities – shareholders, direct employment,

access markets Agreements – clear rights and obligations of the

parties, milestones and monitoring Social and environmental safeguards Corporate Social Responsibility can be part but not

central to the business model3IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

What are inclusive business models?

Business models – way business creates and captures value within network of producers, suppliers and consumersBusiness models - strategy (process and design),

operations (implementation)Partner network (supply chain and coordination) -

competitiveness

Key elements Ownership – natural, physical, financial assets and human

capital Information – accessible to all partiesParticipation (Voice) – planning, decision-making,

monitoring and addressing relevant issuesTransparency – decisions, relevant accounts (cost structure,

profits, tax contribution, benefits to communities)Risk – commercial, financial, political, natural disastersReward – sharing costs and benefits of the investment4 IIED for Pan-African Parliament Seminar- Making Investment

Work for Africa

Structuring agricultural investments – many possible models

Joint venture Contract farming or outgrowers Management contract Supply chain relations ...

Plus business links outside agricultural production – eg. processing, packaging, transport and other services

Diversity within each model

Combination of models

5IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Agriculture investment does not always have to be about private land tenure; explore different models 1. Joint-ventures – co-ownership, shared risks and

benefits, decision making and dividends in proportion of equity shareRepresentation of minority shares and influenceAgribusiness reduce political risk and increase supplier motivation,

possible help with branding and reputation

Challenges and opportunitiesCapacity and genuine voiceValuation of community assets and definition of shares in the

businessShare beyond production to value addition activitiesRisk assessmentsCoexistence, immediate livelihood benefits6 IIED for Pan-African Parliament Seminar- Making Investment

Work for Africa

Agriculture investment does not always have to be about private land tenure; explore different models 2. Contract farming/outgrowers – formal and informal

supply agreements between suppliers and buyers Prices of inputs and outputs, credit, delivery dates, quantities and

qualitiesSecure market for suppliers, access to credit, farmers maintain land

ownership Efficiency, inclusion and transaction costsMonopsony

VariantsCentralized model – company control, large number of

smallholdersNucleus Estate Model – company has a plantation to

secure supply of raw materials, satellite growers second stage involvement, small number of farmers7

IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Agriculture investment does not always have to be about private land tenure; explore different models (cont.)Variants (cont)

Multipartite Model – Government agencies, private companies and farmers; different entities in different areas of value chain

Informal Model ??– SME and farmers, seasonal, minimum support (except grading) – exploitative and high risk of default

Intermediary Model ??– subcontracts, missing direct link, dilution of standards, credibility and honesty of intermediaries affects prices to farmers

Opportunities and challengesWell established, high value crops (perishable and non-

perishable)Negotiation power, clarity on terms of relationship Enforcement- contract default, – supplier and buyer

dishonour agreement8IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Agriculture investment does not always have to be about private land tenure: explore different models (cont.)3. Management contracts – lease or tenancy, ‘stewardship’

managing land on behalf of owners; profit sharingTenant farming – subset of management contracts

smallholders working in land of large scale agribusiness; fixed rental fee

Value of asset is key

4. Upstream and downstream business links – separate ownership of assets; opportunities beyond direct agriculture production

5. Farmer owned businesses – associations – scale up land and investments, link with corporate business along the value chain

9IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Inclusive businesses – not new to Africa, replicate, scale up, improve arrangementsCooperative – Ghana (cocoa) and Kenya - tea,

flowers and vegetablesManagement contract – South Africa (e.g. MONDI)Contract farming or out-grower schemes –

Mozambique, Uganda, Malawi, Zambia – sugarcane, tobacco, cotton, paprika

Joint ventures – honey production MozambiqueEmployer-employee – still necessary combined

with other strategiesSole smallholders – markets for inputs and

products – cashew, coconut – Mozambique, ....

10IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Exploring further the business models– innovating financing for economic and environmental sustainabilityPublic finances

Co-financing – credit, extension services, research, Open trading

Trading of reduction of emission (e.g. From conversion, agrochemicals,...) – conservation agriculture; Plan Vivo (agroforestry)

Self-Organized private dealsDirect payments for environmental services –

productive land, water,..Eco-labelling

Market labels – who produced, ZambiaCertification – how it was produced, environmental

impact11

IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Best practices?Need to be constructed!All models can be deliberately changed to

suite the powerful partyChecks and balances need to be put in

place!

12IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Not a recipe, but,.. It certainly helps!

Business models for sustainable development => deliver economic, social and environmental benefits through core business activities rather than philanthropy

Value proposition (tangible results from goods or services) _ Social, Economic and Environmental values – equitable distribution within the market chain (creating value and capturing value) Value = financial, social and natural capital

Build capacities and strategic alliances with other enterprises, government agencies and development practitioners

Involving local communities as partners and co-designers - local buy-in and ownership

Significant investment - time and resources - at the start it pays off => self-sustaining in the long term

Trade-offs among different SD goals recognised and addressed – conflicting goals are common , seek viable compromise solutions

Ongoing monitoring and evaluation - built in to the business model 13 IIED for Pan-African Parliament Seminar- Making Investment

Work for Africa

What is the role of Parliamentarians in improving the current approach to business in Africa?

Legislate the general frame of potential business models for different categories of agriculture produceValue addition within the country boundaries – maximize

benefitsFree, priori and informed consent preceding decision –

opportunity to ensure safeguards are in placeReview committees for business adjudication include

MP as observersMonitor the impact of businesses and enforcement of

terms

Not meant to reduce the conduciveness of investment environment but establish transparent procedures as well as checks and balances to ensure that Africa benefits from agriculture investments

14IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Thank youObrigada

Merci

15IIED for Pan-African Parliament Seminar- Making Investment Work for Africa