Agricultural Development Economics Division (ESA) Session 5: Case 2 PPPs for Value Chain Development (VCD)

Agricultural Development Economics Division (ESA) Why PPP for VCD? Sector restructuring plans to respond to trends in global demand Transition to market-based agricultural system Need for greater VC integration Invest to create broad-based growth Improved quality & increased value addition Social inclusiveness Pressure to demonstrate responsible sourcing Ensure food safety, quality & environmental management Coordinated approach between public, private and civil society actors is required

Agricultural Development Economics Division (ESA) What is the public good? Food security Import substitution Food safety Environmental management Poverty reduction Rural employment creation/ social stability Broad-based industry development Inclusion of smallholders & SMEs Strengthen rural institutions Increase productivity & competitiveness of domestic actors Sustainable food systems

Agricultural Development Economics Division (ESA) Types of VCD PPPs

Agricultural Development Economics Division (ESA) Two types of VCD PPPs Sub-sector (Meso level) Encourage investment into sub-sector as a whole Focus on increasing productivity Increase farmer livelihoods/food security Includes territorial approaches Stimulate rural economies Value Chain (Micro level) Upgrade established VC Focus on Value addition & product differentiation ▫Agro-processing-certification Quality & traceability Meet end-market consumer requirements ▫Organic, FairTrade, Rainforest Alliance

Agricultural Development Economics Division (ESA) PPPs to develop Meso-level VC Institutional framework Supportive policy incentives and regulations Long term commitment Formal PPPs Several private partners Design Large scale commodities ▫oil palm, sunflower oil, sugar Emphasis on production and inclusion Environmental impact considered

Agricultural Development Economics Division (ESA) Meso-level PPP VCD Subsector/ Value Chain PPP Purpose Total investment USD$ Palm oil export Colombia Extend oil palm cultivation in conflict areas 6 million 21% public/64% private 14% others Rubber Ghana Revitalize deteriorating industry 37 million 100% public/private (undisclosed) Palm oil export Indonesia Create economic growth in remote areas 16.7 million 37% public/63% private Sunflower oil Uganda Address import substitution & poverty reduction US$ % public/59% private

Agricultural Development Economics Division (ESA) PPPs to develop Micro VC Objectives Competitiveness – first mover Capitalize on high value market opportunity Value addition and product differentiation Design Firm or public sector (APP programme) as driver Interventions at firm level Co-funding for standards Matching grants POs, SMEs Support services provided by either partner, or outsourced Important role of farmer cooperatives/groups

Agricultural Development Economics Division (ESA) Micro-level PPP VCD Subsector/ Value Chain PPP Purpose High quality coffee Colombia Environmental protection; increased smallholders income; differentiated coffee 30 million 39% public/58%private 3% other Sweet pepper Indonesia Greater access to differentiated market 5.5 million Public/private undisclosed Mango processing Kenya Greater access to markets/increase smallholders income US$ % public/41% private/6% FO Organic banana Peru Increase SMAEs and FO competitiveness US$ % public/90% private

Agricultural Development Economics Division (ESA) Role of Public & Private Partners

Agricultural Development Economics Division (ESA) Partners PUBLIC National, regional, and local authorities/Ministry of Agriculture`s Programmes/Other Ministries (Cooperatives, Industry, Social Inclusion)/Agric Development Banks/USAID-GIZ/Universities Design programmes Manage bidding process Support negotiations Provide technical assistance Monitoring & evaluation PRIVATE Exporters, multinational food companies, SMEs, agro-processors Federation farmers groups Farmers` organizations Secure market Lead implementation Provide technical assistance Contract farmer organizations Link to finance and 3 rd party certification.

Agricultural Development Economics Division (ESA) Roles of Public Partners Create enabling env. Policies & incentives for investment Design programmes In line with national sector policies Ensure inclusion Develop guidelines & selection criteria Manage bidding & evaluation Negotiation & contract signing Ensure regulatory compliance Contribute funding Facilitation Access to land & rural infrastructure Link to research and extension networks Mobilize farmers/ strengthen POs Monitoring Business plans Farmer-company r’ship Trigger fund release Evaluation (?)

Agricultural Development Economics Division (ESA) Impacts of VCD PPPs

Agricultural Development Economics Division (ESA) Impacts Meso VCD for farmers PPPImpact for farmers Palm oil export Colombia employment generated; 60% increase in income for 300 farmers Rubber Ghana outgrowers contracted Secure market at fair prices/ employment generation Palm oil export Indonesia Access to market for producers Gross annual income US$ 2 800/ha Technical knowledge in oil pal developed Sunflower oil Uganda 138% increased income outgrowers contracted Secured market for output

Agricultural Development Economics Division (ESA) Impacts Micro VCD for farmers PPPImpact for farmers High quality coffee Colombia coffee growers certified with increased earnings-target Stimulated additional investment (US$3.2 mil) Sweet pepper Indonesia 50 farmers exporting Increase revenue Mango processing Kenya 450 small-scale growers linked to agro-processing 42 % increased income for farmers Organic banana Peru 284 farmers exporting certified organic banana 33% increased income for farmers

Agricultural Development Economics Division (ESA) Challenges and Success Factors

Agricultural Development Economics Division (ESA) Institutional weaknesses Unsupportive regulatory environment (CF) Poor inter-ministerial coord. Complex bureaucracy Low public partner motivation Environmental & social concerns (monoculture/deforestation/land grabbing/exclusion) How to achieve scale & ROI? Limited funds, high costs Lack of risk mgmt. tools Other –Technical-operational Farmer failure to comply with standards Limited first-mover advantage Poor delivery on infrastructure Misalignment of monitoring systems Negative public perception Challenges in VCD PPPs

Agricultural Development Economics Division (ESA) Success factors VC PPPs Address enabling env. issues Enforceable & equitable contract farming agreements Enhanced legislation (land rights, land laws) Tailor design to deliver public good/social benefits Reduce bureaucracy to expedite agreements Business case Market feasibility & VC studies a must Develop detailed business plans Governance Multi-stakeholder meetings for transparency Active role for local gov. Intermediation role for farmer groups Select private partners with record of inclusion Robust monitoring

Agricultural Development Economics Division (ESA) VC PPPs – Unanswered Questions Calculating the return on investment for the funding Assessing opportunity cost of PPP versus other public funding mechanisms Replicability/ Scalability Improved result-based evaluation of the partnership