1. www.fao.org/economic/esa Agricultural Development Economics Division (ESA) Session 5: Case 2 PPPs for Value Chain Development (VCD)

2. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

3. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

4. www.fao.org/economic/esa Agricultural Development Economics Division (ESA) Types of VCD PPPs

5. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

6. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

7. Agricultural Development Economics Division (ESA) www.fao.org/economic/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$ 850 000 41% public/59% private

8. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

9. Agricultural Development Economics Division (ESA) www.fao.org/economic/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$ 230 000 53% public/41% private/6% FO Organic banana Peru Increase SMAEs and FO competitiveness US$ 480 000 10% public/90% private

10. www.fao.org/economic/esa Agricultural Development Economics Division (ESA) Role of Public & Private Partners

11. Agricultural Development Economics Division (ESA) www.fao.org/economic/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.

12. Agricultural Development Economics Division (ESA) www.fao.org/economic/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 (?)

13. www.fao.org/economic/esa Agricultural Development Economics Division (ESA) Impacts of VCD PPPs

14. Agricultural Development Economics Division (ESA) www.fao.org/economic/esa Impacts Meso VCD for farmers PPPImpact for farmers Palm oil export Colombia 1 300 employment generated; 60% increase in income for 300 farmers Rubber Ghana 3 880 outgrowers contracted Secure market at fair prices/ employment generation Palm oil export Indonesia Access to market for 2 500 producers Gross annual income US$ 2 800/ha Technical knowledge in oil pal developed Sunflower oil Uganda 138% increased income 45 00 outgrowers contracted Secured market for output

15. Agricultural Development Economics Division (ESA) www.fao.org/economic/esa Impacts Micro VCD for farmers PPPImpact for farmers High quality coffee Colombia 4 000 coffee growers certified with increased earnings-target 19 000 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

16. www.fao.org/economic/esa Agricultural Development Economics Division (ESA) Challenges and Success Factors

17. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

18. Agricultural Development Economics Division (ESA) www.fao.org/economic/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

19. Agricultural Development Economics Division (ESA) www.fao.org/economic/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