Isilda Nhantumbo, IIED Overview of different business models for private investment in agriculture 1 IIED 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 global Our mission is to build a fairer, more sustainable world, using evidence, action and influence in partnership with others. Climate Change – mitigation (REDD+) and adaptation Natural resources – Land, Forests, Agriculture, Water, Biodiversity Sustainable Markets –positive social, environmental and economic outcomes Governance 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 economy Communities – 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 model 3 IIED 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 consumers Business 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 parties Participation (Voice) – planning, decision-making, monitoring and addressing relevant issues Transparency – decisions, relevant accounts (cost structure, profits, tax contribution, benefits to communities) Risk – commercial, financial, political, natural disasters Reward – sharing costs and benefits of the investment 4 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 5 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 1. Joint-ventures – co-ownership, shared risks and benefits, decision making and dividends in proportion of equity share Representation of minority shares and influence Agribusiness reduce political risk and increase supplier motivation, possible help with branding and reputation Challenges and opportunities Capacity and genuine voice Valuation of community assets and definition of shares in the business Share beyond production to value addition activities Risk assessments Coexistence, immediate livelihood benefits 6 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 qualities Secure market for suppliers, access to credit, farmers maintain land ownership Efficiency, inclusion and transaction costs Monopsony Variants Centralized model – company control, large number of smallholders Nucleus Estate Model – company has a plantation to secure supply of raw materials, satellite growers second stage involvement, small number of farmers 7 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 challenges Well established, high value crops (perishable and non-perishable) Negotiation power, clarity on terms of relationship Enforcement- contract default, – supplier and buyer dishonour agreement 8 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.) 3. Management contracts – lease or tenancy, ‘stewardship’ managing land on behalf of owners; profit sharing Tenant 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 9 IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Inclusive businesses – not new to Africa, replicate, scale up, improve arrangements Cooperative – Ghana (cocoa) and Kenya - tea, flowers and vegetables Management contract – South Africa (e.g. MONDI) Contract farming or out-grower schemes – Mozambique, Uganda, Malawi, Zambia – sugarcane, tobacco, cotton, paprika Joint ventures – honey production Mozambique Employer-employee – still necessary combined with other strategies Sole smallholders – markets for inputs and products – cashew, coconut – Mozambique, IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Exploring further the business models– innovating financing for economic and environmental sustainability Public 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 deals Direct payments for environmental services – productive land, water,.. Eco-labelling Market labels – who produced, Zambia Certification – how it was produced, environmental impact 11 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 party Checks and balances need to be put in place! 12 IIED 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 produce Value addition within the country boundaries – maximize benefits Free, priori and informed consent preceding decision – opportunity to ensure safeguards are in place Review committees for business adjudication include MP as observers Monitor 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 14 IIED for Pan-African Parliament Seminar- Making Investment Work for Africa

Thank you Obrigada Merci 15 IIED for Pan-African Parliament Seminar- Making Investment Work for Africa