FAO – NAMCFAO – NAMCLinking Farmers to MarketsLinking Farmers to Markets

The role of the NGO ; The role of the NGO ; an Agri business perspectivean Agri business perspective

CHEETAH PAPRIKA CHEETAH PAPRIKA

Mark Terken Stellenbosch, 6 Oct 2009Mark Terken Stellenbosch, 6 Oct 2009

Presentation OutlinePresentation Outline

• Introduction and background• Strength & weakness of the 3 groups;

- Agri business, NGO & farmer• What is an enterprise / agribusiness• Cheetah paprika and contract farming• 5 examples of co-operation with NGO & projects;

Clusa, Care, POTC, Cordaid, Zatac• Recommendations

Strength & Weakness Strength & Weakness Agri buss / CheetahAgri buss / Cheetah

STRENGTH– Excel in product and market knowledge– Long term vision – Focus on sustainability– Understand farmer skills and 3rd party missions – Strong in agronomy, extension materials, production cycles and

training– Individual, well defined one page contracts with farmer

WEAKNESS– Occasional delay in payment to farmer– Extension & Procurement on ground not always in line with

company rules– Control over transparent grading

Strength & WeaknessStrength & WeaknessSmall holder farmersSmall holder farmers

STRENGTH– Committed to farming– Once a product / system works for him or her, he or she will

stick to it– Eagerness to learn and improve

WEAKNESS– Education poor, lack of expertise and will sign any ‘contract’– Hear say is the norm rather than being factual– Farming by default, rather than by choice & ability– Lack of a ‘3 year vision’– Generally late in preparations, spending minimal effort– Diversion of inputs for cash and to known crops – Will sell to highest bidder versus sticking to contract

Strength & Weakness Strength & Weakness NGO or ProjectNGO or Project

STRENGTH– Resources; people, transport, crop finance– Training farmers– Knowledge and operational at rural level

WEAKNESS– Subjective; sentiments close to farmers– Selection of commodities and farmer groups not based on

realistic business opportunities– Lack of understanding of business, markets & logistics– Project term (short) / project manager focus

ENTERPRISEENTERPRISE

Definition;

organized business activities aimed specifically at growth and profit

a new, often risky, venture that involves confidence, initiative and cash

Differentiate ‘ENTERPRISE’ from Differentiate ‘ENTERPRISE’ from activities or organizations which do activities or organizations which do

require continued supportrequire continued support• Many local or international NGO supported projects or activities• Most humanitarian work• Relief programmes• Charities• Many donor projects and other public sector interventions

ACTIVIES DEVELOPED WITHOUT THE UNDERSTANDING OF

• LOCATION OF PRODUCTION IN RELATION TO LOCATION OF MARKETS

• SUPPLY SCHEDULE, VOLUME AND QUALITY REQUIREMENTS OF BUYERS / PROCESSORS

• TRUE VALUE (AND PRICE VOLATILITY) OF COMMODITIES• REAL COST OF PRODUCTION OF GOODS OR SERVICE

WARNINGWARNING

• ENTERPRISE requires to provide goods or services; – to a market or client which is within reach of the

enterprise– supplied in volumes, of a specified quality and per

schedule as determined by the client– produced and delivered at price higher than the cost

of production (= for profit)– offered at a competitive price (your client has to earn

with the goods or services supplied) – on a growth and sustainable basis

CHEETAH LIMITEDCHEETAH LIMITED• Private company established in 1995• Exporting Paprika and Chilli products from Zambia, Malawi and

Mozambique to European Food Ingredient industry• after establishing agronomical suitability and international

competitiveness• Operating an out grower scheme for the supply of raw materials;

dried and graded paprika• Exports peaked in 2003 exporting 2,500,000 kg dry paprika• Offering up to 20,000 Smallholder farmers

– An alternative cash crop with growth opportunities– Contracts with Guaranteed market, regional sales points– Price stability, based on US$– Credit arrangement on Quality Seed and Agrochemicals– Improved agronomy – Training and extension services inclusive of materials

Key Economic Factors for Cheetah Key Economic Factors for Cheetah as a businessas a business

• Volume > 500,000 kg dry paprika per country• Can only sell Quality as determined by it’s client• Need to supply clients on contracted monthly delivery

schedule• Competitive purchase price, to be able to compete on

global markets

• Can this be achieved with smallholder farmers in a complex and demanding social, political and economical environment and where rainfall is a determining factor?

CHEETAH

Competitors

International Competitors

Export Market

Employees

Structure

CEO

Extension and Procurement

Sales and

Marketing

Finance and Admin

Quality Control

Productions & Operations

Distribution

Processes

Politicians

Govt

Competing for Market

Zimbabwe

Peru India

China

Brazil

SA

USSpain

Issues

IssuesIssues

IssuesIssues

Issues

Socio-Economics

THE CHEETAH MODELTHE CHEETAH MODEL

• Field days • Group formation or group / group leader support• Dollar based pricing • Pre-season agreements – guaranteed minimum

price and market – written one page contracts• Seeds & agrochemicals on part credit• Extension materials (crop budgets, agronomy

manual, crop cycle news letters) and training• Provision of packaging materials• Crop collection and depots close to farmers• Feed back

Contracting SystemsContracting Systemsused by Cheetahused by Cheetah

1. Direct through own extension network system, smallholder groups and commercial farmers

2. Traders

3. NGO’s, projects and other collaborating partners; Care, Clusa, Potc, IDE, Zatac, World Relief, World vision, Cordaid, Hivos, Copperbelt initiative, SFAP, etc..

DirectDirect

Strength• Close collaboration with farmer groups• Intensive training per farmer group• Control over quality and quantityWeakness • High overhead costs per kg• Management intensive • Short term employment requirements• Cash payments in fields – risks

TraderTrader

Strength• Little risk for Cheetah• Operate in remote, non viable areas for Cheetah

Weakness• Intermediate Buyers

– Short term advantage Farmer may be neglected especially during seasons of low pricing

• Unreliable - limited supply security even with contract in place

NGO’s and other dev. PartnersNGO’s and other dev. PartnersStrength• Rapid expansion of commodity volume• Potential for good quality and budget yields because of input

finance• Central training of NGO’s extension staff• Sub-contracting procurement – absorption Extension and

procurement costs• General reduction of high transaction costsWeakness• Temporary Do Good motivation – rather than ensuring

sustainability of value chains• Subsidizing business costs – unfair competition• NGO’s vulnerability to political and other external pressure• Unknown agendas & plans, especially on exit

Evolving Cheetah modelEvolving Cheetah model

• From group contracting (1 per group) to individual farmer contracts

• From mass recruitments to selected group formation and selection

• From supply of seed and packaging materials on full credit basis to down payment system by farmer

• From contracting and extension services provided by Cheetah personnel to provision of these services by empowered groupleaders, Cheetah personnel having role of coordination and technical training of group leaders

• Reduction of company overheads by providing income to group leaders, who receive income based on seed sales / contracts, credit recovery and crop volumes / grading

Improvements required on Cheetah Improvements required on Cheetah modelmodel

• Create greater efficiencies; concentrate farmer groups • Select farmers with greater potential and grow the ability of the

farmer• Create a better understanding by the contracted farmers of the

annual agreements in relation to product quality, grading, price and payment modalities

• Ensure consistent payment within 1-2 week after purchase • Empower Group leaders to become Entrepreneurs• Provide higher level of inputs provided that credit recovery rates

increase to acceptable levels (> 80%)• Grow farmer volume from 50 - 100 kg paprika to 250 - 500 kg• Government to assist in agreements enforcing, reduce side

selling / side buying activities, support genuine businesses and not the ones affiliated to politicians

How to promote trustHow to promote trust

• Be an industry leader for a number of years• Be visible & transparent• Develop open Farmer, Group, NGO and Agri buss

Extension staff relationships, create feed back and discuss

• Offer a 2 way purchase agreement which is fully understood and agreed by farmer

• Pay within 7 days of product delivery• Agree on grade & weight at time of transaction, not

afterwards with results from central factory• Host field days & carry out regular cycle training

How to avoid input diversionHow to avoid input diversion

• Train farmer in crop budgets and make him understand that fertlizer and agro chemicals applications are essential to achieve budget yields

• Monitor, monitor, monitor• Ensure that farmer applies at appropriate rates

and times and let him experience the reduced losses and maximum yields over a period of 3 years

How to avoid side selling = How to avoid side selling = WISH LIST FOR FARMERWISH LIST FOR FARMER

• Buy at Farm gate• Offer highest price• Cash payment• Offer all inputs; seed, fertilizers, chemical, packaging• Offer training & materials• Be lenient in product grading

The above is a BIG LIST a very costly package and not so ‘real world’….

Clusa ZambiaClusa Zambia+ Vast amount of resources; management, extension staff,

extension equipment, support office, training, input provision and distribution

+ credit management business in house

+ solid development over 3 yrs

+ farmers well trained in paprika agronomy (and horticultural production in general)

+ farmers trained in borrowing and repayments- no clear exit strategy in place - sell out to Bimzi / Enviro oils due to political pressure in

year 3, system collapses

Care MozambiqueCare Mozambique+ Strong driver in developing new products in Nampula

+ Understand requirement for solid agri buss partner

+ Vast amount of growers instantly; 5000

+ Extension systems + hardware availability

- Farmer density too low, transaction cost for the agri

business is too high- Climate & soils not optimal for the crop, should have been

tested- Cheetah had too few resources in place for quality

extension network and logistical support (inputs in – product out)

POTC, ZambiaPOTC, Zambia+ Vast amount of resources: Management, Extension, Large fleet,

Group formation & training, High level of input provision, crop collection

+ Created production of 140,000 kg quality paprika after only 3 year period

- Over extending credit to farmers- Transferring NGO contract price, this meant a farm gate price 20-

25% above real market value price (nice for farmers but not sustainable)

- No long term agreement in place – year to year negotiations uncertainty for Cheetah

- No MOU detailing an exit strategy in place, basically 4 years work and a lot of capital (public funds) lost…

Cordaid MalawiCordaid Malawi+ Base line study in place

+ Focal analysis of business proposition; product, market, business, finance requirements

+ Value Chain approach;

Extension, Inputs – Micro finance, Trade finance

+ Let the partnering Agri bussiness be the leader / driver of the development

+ Clear contracts and financial means in place

- Requires more monitoring of extension results and micro finance management + credit recovery

Zatac ZambiaZatac Zambia+ Understanding of markets

- American Consulting firms require vast farmer numbers to succeed in winning tenders for the running of value chain programs

- Interventions not very clear- It is unclear what value the farm as well as the agri

business interventions have created - Most resources will go to the Consulting firms, not to the

intervention with the farmer (training, inputs, logistic support)

Recommendations to NGORecommendations to NGO• Be realistic; know the farmers, infrastructure & transport,

markets and your own capacity and means• Separate ‘Doing Good’ from ‘Creating Sustainable Farming’• Carry out check on feasibility of product & logistics• Know product cycles and price volatility• Adjust your support to the commodity and the agribuss relative to

the investment made and volumes in the past traded by the agri business

• 3 YEAR MOU BETWEEN NGO & AGRI BUSS, the MOU is supported by annual work plans

• Smallholder support; extension, input provision, logistics are very costly – ensure that strong management & budget (people, transport, logistics & inputs) are in place and really relate to the number of farmers or farmer groups supported

Recommendations to NGO cntdRecommendations to NGO cntd

• HAVE A CLEAR JOINT EXIT STRATEGY • Make farmers stick to the annual contracts; it is a one year

marriage • Drop loosing products as well as short term farmers and agri

business• Ensure that farmers invest from own resources & savings, even

when it is a small contribution. Farmers need real risk, realistic opportunities, hard work and commitment to succeed !! (this counts for all of us..)

• NGO’s are responsible for money being well spent; establish base lines before interventions and measure value created to both the farmer and relevant partners in the value chain

• Stay out of creating ‘the competition game’…

What to doWhat to do• Know products (agronomy + production costs + quality specs),

markets & price and logistics • Envision realistic goals for over a 5 year period• Understand the drivers of both farmer and agribusiness equally well• Adjust the farmers numbers and work program to management,

staff and resources available• Work out and deliver on a clear 3 year MOU + exit strategy with the

Agri business party

GOOD LUCK SUPPORTING FARMERS, GROUPS, AGRI BUSSINES AND YOURSELF

SO ALL BECOME WINNERS !!!!!

CHEETAH PAPRIKA

CREATING MARKETS

TRAINING PEOPLE AND

EMPOWERING COMMUNITIES

ZIKOMOMARK TERKEN VALUE CHAIN SPECIALIST