The Clinton Development Initiative has lessons for investors on approaches that empower farming communities and build their resilience to take on contracts. This blog, by Ariana Constant and Dyna Kuthyola Mpasuka from CDI, shows that empowered producer cooperatives are exactly what investors need to form long-term and sustainable relationships with small-scale farmers.
A key message from CASA is that investors should pay attention to contractual terms in agricultural value chains, to ensure their development impact at the smallholder level. This blog shows how this can be achieved.
Ariana and Dyna write: After over a decade working to change the shape of agribusiness in Africa, in 2017 the Clinton Development Initiative (CDI) introduced a new approach to empower farmers in Malawi. Four years on, we are now working with over 35,000 farmers through a network of cooperatives and farmer groups.
At CDI we believe farmers are most effective when they work through farmer groups. These groups are most likely to secure adequate rewards for farmers delivering consistent, high-quality crops produced at scale.
When you talk to the leaders of the 15 farmer groups we have been working with, they explain that our interventions got them to the point of being investable. They see how the slow incremental progress can be accelerated with greater input from the private sector. The private sector can help fix critical access to inputs, production finance, market access and timely provision of weather and market information. These interventions allow small-scale producers to deliver crops, collectively, at scale. There are infrastructure investment opportunities too in warehousing and cold storage, roads and vehicles for transport, and technology at the farm and post-harvest levels.
CDI is working to help farmer boost their output and their incomes through combined and coordinated development.
The community agribusiness approach
At CDI we promote a community agribusiness (CAB) approach which trains farmers and develops cooperatives. We can then facilitate access to farm inputs, financial services and commodity markets offering premium prices.
Building blocks that build the capacity
We have identified the practical building blocks we apply to build the capacity of the cooperatives and their members. In exchange for this support, the cooperatives are expected to comply with standards, including commitments to gender equity and environmental sustainability. The standards also provide a framework for responding to challenges the farmer groups face as they develop market access and acquire finance.
In Malawi we have a partnership with the Ministry of Agriculture and CASA. We’ve been working together to identify farming communities and hold sensitization meetings with and for 40 groups in 8 locations. We’ve conducted a needs assessment, targeting specific opportunities and to meet the needs expressed by the farming communities.
The next step was to identify hub farmers. These are early adopters of technologies who seek market opportunities to diversify their revenue streams. They become a resource for supporting other farmers. We support the formation of farmer clubs that focus on production and savings and loans.
The clubs will eventually be registered as cooperatives engaging in agribusiness. We facilitate training based on the needs assessment. The training covers farming techniques and agronomy. Other skills are developed including yield forecasting, which enables the farmer groups to negotiate with buyers from a position of strength.
Training also extends to mindset changes in the area of financial literacy and community banking. There is also a strong focus on the skills needed to form and manage groups and cooperates.
CDI then helps broker sustainable and resilient relationships between cooperatives and buyers, banks, and input suppliers in the agricultural value chains.
The other critical intervention is to provide access to market information to ensure groups make informed decisions to sell at the best possible prices. Cooperative leaders are supported to advocate for direct investment through the creation of business plans.
Financial literacy training is a critical step in establishing a cooperatives financial independence and de-risking perceptions of banks when lending to farmers. Because we are looking to reinforce changes in attitude and behaviour, the training is refreshed twice a year for 3 years.
We invested US$55,000 to provide training to 450 community banks. These groups are typically 15-30 members. The groups will then be eligible to access the farm input loans we provide. A US$50 farm input loan gives farmers more than a US$300 return on the investment. This return is based on utilizing high-quality planting material and inputs to achieve higher yields, better quality crops and more income.
Timely loan repayments by the farmer clubs also builds their credit history, which helps the farmers subsequently to get loans from commercial banks in Malawi. We also work with banks to reduce typical interest rates making them more accessible to early-stage agribusinesses. In one instance we worked with a bank to decrease the interest rate from 21% to 17%. We also co-created a repayment schedule that corresponds with farmers cash flows decreasing the default rate.
Active market engagement
Direct market relationships are critical to the sustained growth of farming cooperatives. Buyers have long lamented over challenges purchasing from smallholder farmers. Sometimes only simple changes are needed. Once we can build trust between the buyers and cooperatives, and encourage direct payment to cooperatives ahead of sourcing, we can eliminate side-selling.
In the first year CDI helps coordinate the relationship between buyers and groups. Putting in place facilities, such as warehousing and aggregation centers, solves some of these issues. For the longer term, the 15 cooperatives are coming together to certify crops and build trust with the buyer.
Africa Improved Foods (AIF) in Rwanda, made a commercial decision in 2019 to work with CDI to increase sourcing from small-scale producers. They also wanted to expand from reliance on Rwanda, Uganda and DRC. 15 cooperatives, supported by CDI in Malawi, sold high-quality soybeans to AIF for US$2 million. In 2020 Covid-related border closures emphasized the need to diversify supply chains across and within countries.
Diversifying supply chains make investment in additional processing facility, closer to the markets in Kenya, Tanzania, and Malawi, more likely. There are opportunities to invest in the farming cooperatives. For example, investment in sorting and bagging equipment at aggregation centers or dryers to reduce moisture content.
The CAB approach uses grants to develop an enabling environment for cooperatives to build on.
One farmer leader, Cosmas James, explained to us that before they started working with CDI to develop the cooperative, they used to work as individuals. Production was very low, which limited access to structured markets. He explained that CDI taught the cooperative the importance of working together as a group. In the first year they managed to aggregate the soybean. CDI found them a buyer who bought over 300 tonnes at a price the cooperative had never previously achieved. CDI got the cooperative to the point of being investable.
As we work to register 15 more cooperatives focused on poultry, soybeans and fish, it is imperative to line up investments in processing equipment to improve production capacity and efficiency of the coops. One of our priorities is investments in fish food processing equipment in Malawi. This will stop the current dependence on expensive imported feed.
We hope CDI will to continue to benefit from grant funding. This will allow it to build a more robust pipeline of farmer producer groups, cooperatives and farmer associations that are CAB compliant. We will continue to play a role in facilitating direct investment into cooperatives. Finally, we are developing a series of farmer-owned brands which will help them to achieve premium prices for their crops.
CDI’s work goes beyond Malawi, with operations in Tanzania and Rwanda. This regional footprint enables further interactions and resilience building across multiple geographies.
About the authors
Dyna Kuthyola Mpasuka manages and coordinates CDI Malawi’s work on metrics, communications, and development. She has been working with the Foundation for over 7 years. Ariana Constant is the Director of the Clinton Development Initiative, an initiative of the Clinton Foundation that drives community agricultural business development across farming populations in Malawi, Rwanda and Tanzania.
About CASA Malawi
CASA Malawi supports aquaculture and poultry SME agribusinesses, smallholder groups and business groups to increase their productivity and access to markets. CASA Malawi strives for more inclusive market structures, enabling smallholders to engage and participate in value chains. It works to improve the pipeline of investable agribusinesses with significant smallholder supply chains and to engender a more transparent and competitive agribusiness enabling environment.