By Harold Liversage, regional land advisor, and Steven Jonckheere, land and natural resources associate for IFAD in East and Southern Africa.
A range of stakeholders, from civil society, governments of both investing and recipient countries, and intergovernmental organizations, have expressed concerns about the possible negative impact that increased demand and competition for land and water is having on the land rights and food security of rural people in developing countries. At the same time it is recognized that if done properly, private-sector investment can play a significant role in providing much needed capital, expertize, technologies and market access for smallholder farmers and rural communities more generally. To realize these benefits it is important that smallholder farmers and rural communities more generally are centrally involved in decisions regarding the investments being made.
One approach to increasing sustainable private-sector investment in agriculture, is to promote mutually beneficial partnerships between smallholder farmers and private-sector investors.. Such partnerships can take the form of outgrower schemes, contract farming or joint share equity schemes, with outside investors focusing mainly on providing expertise and other support in agro-processing or improved access to markets. The success of such partnerships, and the real benefits to smallholder farmers and rural communities more generally, depends on the level of ownership, voice (governance), risk-sharing and benefit-sharing between partners.
During the workshop a range of business models that are being used by IFAD to structure agricultural investments in lower- and middle-income countries were showcased at the workshop. The following five experiences were presented and revealed what has worked – and what has not – in inclusive business models currently in practice: i) commercial oil palm farming in Uganda; ii) integrating smallholder farmers in Swaziland’s sugar industry; iii) building farmer’s income and safety nets while securing the local energy supply in Burkina Faso and Mali; iv) organic and Fairtrade cocoa production in São Tomé; and, v) smallholder tea production in Rwanda.
The models fall under the umbrella of ‘contract farming’ or ‘outgrower farming’, which involves agricultural production carried out on the basis of an agreement between the buyer and farm producers. It has been used for decades but its popularity has been increasing in recent years. Under one of them, the ‘centralized model,’ a company provides support to smallholder production, purchases the crop, and then processes it, closely controlling its quality. This model is used for crops such as tobacco, cotton, sugar cane, banana, tea and rubber. Under the ‘nucleus estate’ model, the company also manages a plantation in order to supplement smallholder production and provide minimum throughput for the processing plant. This approach is mainly used for tree crops such as oil palm and rubber. If done properly, the centralized model or nucleus estate can provide a good basis for a strong partnership between smallholder farmers and investors. For example, if an investor is establishing a processing plant, his risks can be reduced he is able to secure a guaranteed minimum production output. At the same time, the company can strengthen its commitment to provide the best inputs and technical support to smallholders, as well as providing farmers with a guaranteed market. The key for the success of such models is an equitable and transparent pricing mechanism and clear agreements on quantities for the purchase of feedstock from smallholders.
Establishing mutually beneficial partnerships are possible, but they require sustained support by a range of service providers (government, civil society, private sector), and effort and time. Particular attention needs to be given to empowering smallholder farmers and rural communities to engage on equal terms with outside investors. There is also a need to monitor the implementation of agreements to ensure that the anticipated benefits are realized. Private sector is looking for practical tools for securing the tenure rights of local communities. More work is needed to better understand free, prior and informed consent practically entails.