Practical experiences of the value chain approach as a tool for rural development

ENTWICKLUNGSETHNOLOGIE, 25/26 2018/2019

5. Practical experiences of the value chain approach as a tool for rural development Johannes Buschmeier, Holly Hufnagel, Sophie Baumert

5.1 Introduction Value chain development is a key approach for many donors and actors working in rural development. It is seen as a holistic market-driven approach, which can create opportunities to increase incomes by working systematically throughout every step of the value chain from input supply, to production, processing, packaging, and commerce.

Agriculture & Finance Consultants GmbH (AFC) has over 40 years’ experience working on agricultural value chain development in Africa and Asia as a tool for rural development. This paper will briefly discuss agricultural value chain development in the context of rural development before presenting our experience. We will present our four-step approach for value chain development: (i) value chain analysis, (ii) specific activities to address key bottlenecks, (iii) specific activities to increase value addition, and (iv) institutional strengthening of actors across the value chain.

Throughout we will illustrate with case-studies drawing from our experience in Mali, India, Côte d’Ivoire, Nigeria and Ghana. The paper will conclude by analyzing both the strengths and limits of value chain development as a tool for rural development and propoor growth.

5.2 Agricultural value chain development In general, agricultural value chain development should be driven by demand. The demand can be national, regional, or international. Thus the driving force of a value chain will be trade or the processing industry. This may require a shift in paradigm for development actors, as in the past farmers were often the first point of entry irrespective of market opportunities.

Regional or even international demand will not be able to be met by individual farmers because the quantities are simply too small. Also groups of farmers need to be connected with traders and processors. This requires goods to be provided in sufficient quantity and in the required quality. Quality criteria are based on the legal standards of the countries in which the food is to be consumed. In the view of many African countries, high-income countries (such as the EU) set high standards for food imports, some of which have already been described as non-tariff trade barriers.

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Value chain development should serve to generate a higher added value throughout the value chain, which can increase income and employment opportunities for value chain actors. If the impulse is to come from demand, investments are usually required that cannot solely come from primary production or from Financial Cooperation alone.

Private enterprises and investors have a great potential importance here. At present, investors worldwide have a lot of capital at their disposal, which with current low interest rates should be invested profitably elsewhere. The agricultural sector in Africa has been in the focus of investors for several years, which is already evident from the number of comparatively many international conferences on this topic, such as the 6th German-African Agribusiness Forum of the Afrika-Verein der deutschen Wirtschaft (20.1.2020 in Berlin) and the UK-Africa Investment Summit 2020 (20.1.2020 in London). However overall investment levels remain low: Africa attracts less than 2% of all Foreign Direct Investments in the world12. Between 2003 and 2017 a total of 48.737 billion USD was invested in the African food and beverages cluster of which 45% came from Europe, 29% from companies in Asia and Oceania, 15% from North American companies, 10% from African companies and 1% from companies headquartered in Latin America13. The top three individual countries from which investments flow are India, the United Kingdom and the United States.

Obstacles for investors are often the investment climate and infrastructure. However, many of the 54 African countries are working hard on these issues, and investors can initially choose more –investment-friendly countries, such as Rwanda which is ranked #38 in the Ease of Doing Business Index. In order to promote development in terms of economic, ecological and social sustainability, a large number of development funds (such as DEG, CDC Invest etc.) have been created to encourage private investment.

Some African countries such as Ethiopia are setting up "integrated agro-processing industrial parks" to provide investors in processing and trading companies with better infrastructure and a better business climate. So far, the funds have been flowing out only slowly, as there are still too few applicants and thus too few projects worthy of support.

Investors should therefore consider whether conventional, even outdated technologies or particularly innovative solutions (leap-frogging) promise the better return on investment when subsidies are taken into account.

A further bottleneck is also the lack of financing from traditional banks for the agriculture sector. There is a financing gap with many banks reluctant to provide loans for a sector they consider risky and don’t fully understand. "Capacity building" and training of potential banks can be a far-reaching aid in international development cooperation. In this area, we usually work together with national and international development banks such as KFW, EIB, WB and the ADB to develop the skills of local 12

https://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics.aspx.

Husman C. & Kubik Z., Foreign direct investment in the African good and agriculture sector: trends, determinants and impacts, ZEF-Discussion Papers on Development Policy N°274, April 2019.

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banks in developing new products tailored for the agriculture/agro-processing sector and their ability to analyze credit requests.

In Africa we often find the pure production and export of raw materials such as coffee, cocoa or tomatoes, while processed products are re-imported. Therefore, one goal for rural development could be to substitute imports by own production/processing in order to increase the added value in country. In addition, this has the potential to reduce transport costs and emissions. Furthermore, international (EU) requirements for processed foods (standards and consumer demand) do not necessarily have to be met.

When investments are made in processing for which there is a national or regional market (e.g. coffee, tomato paste, fruit juices, milk), the supply of raw materials from primary production is of great importance. A processing company needs raw materials of a defined, consistent quality over as long a period as possible in the growing season in order to be able to use the processing lines to capacity for as long as possible. This is often underestimated by investors, as producers in primary production can pursue other interests, such as the highest possible yields. Some processors, however, will be dependent on the supply of independent agricultural entrepreneurs, usually "smallholders", as they do not want to and cannot establish their own primary production. This opportunity for pro-poor growth by integrating smallholders into commercial value chains is precisely an important interface with development cooperation in the value chain approach. Development Partnerships with the private sector can be one important vehicle. We discuss this approach in further detail in the next section with an example from Nigeria.

Another important aspect of every value chain is the reduction of wastage along the value chain. FAO (2019) estimates that postharvest losses can reach up to 20% for cereals, 30% for dairy and fish, and 40% for fruit and vegetables. This results in a large economic loss where scarce production resources are consumed and emissions are generated unnecessarily. Modern storage and processing can significantly help to minimize these losses while minimizing climate-damaging emissions. There are also innovations in the field of packaging that can be used directly in Africa without "repeating the history of the developed countries" (e.g. "laser labelling" and sustainable packaging materials for fruit and vegetables).

Effects of value chain development on the creation of new jobs do not necessarily benefit actors in primary production. Progressive mechanization for example is necessary and desired but will lead to employment replacement. It should also be borne in mind that the current structure of agricultural enterprises (in Africa mainly small farmers) is not static but under transformation. Young people have been migrating from rural areas for many years, a trend that will further intensify in the Information and Communication Technology (ICT) age. It will not be possible or desirable to preserve the existing farm structures in the long term. Probably, the number of farms will tend to decrease and farm size will increase. While the transformation of the agricultural sector 64

takes place, every value chain approach should take care that additional value is created at the local level and ultimately contributes to increased incomes in rural areas. Both directly for people employed in primary production and processing, and indirectly through increased demand for inputs/products and supporting services. Thus, spillover effects are created locally and new jobs might arise in the processing industry and in the service sector.

5.3 Our approach for agricultural value chain development : case studies Value chain development is not a one-size-fits-all response but requires a tailored approach to the needs of the value chain in question and its specific context. Tomato value chain development will not require the same approach in Senegal as in Tunisia.

The first step therefore for all value chain development projects is an in-depth analysis of the value chain. Being a market-driven approach we begin by defining the final product before tracing back along the value chain. The ValueLinks14 approach for value chain analysis provides a clear step by step methodology: • Mapping of the value chain by defining the functions (inputs, production, processing, commerce, consumption) and the different categories of actors (smallholders, packers, processers, wholesalers, retailers), differentiating the chain into channels if appropriate (different market segments and business models), and mapping support service providers; • Economic analysis of the value chain which should focus on the size and market share of the value chain in the global and domestic markets (potential for growth), and analyze the value added along the value chain.

• Environmental analysis of the value chain which is essential for a sustainable development paradigm.

• Social and poverty analysis of the value chain: this step is key for enabling the development of pro-poor strategies. It involves gender mapping of business operations and key actors, and livelihood analysis for poverty groups.

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https://valuelinks.org.

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The following diagram presents the main steps for value chain analysis according to the ValueLinks methodology. Under each step, we give a non-exhaustive list of suitable analysis tools.

Figure 1: Value Chain Analysis Methodology Based on the aforementioned value chain analysis, key bottlenecks can be highlighted and addressed (2nd step of our value chain approach). A holistic approach is essential- working just on one segment of the value chain will not suffice if there are bottlenecks further upstream or downstream. For example, poor seed quality can lead to greater post-harvest losses or processing problems. Working purely on improved processing methods or storage will not entirely resolve the problem if the seed quality issue is not equally addressed. Bottlenecks can be both technical (for example a new agricultural practice) and organizational (for example a business model needed for mechanization or group- procurement of agricultural inputs via farmer organizations).

Below we present two case studies: the first from our experience in Mali working on the potato value chain where seed tubers where identified as a key bottleneck, and the second from our work in India where shortages of farm labor and therefore mechanization was a key bottleneck.

Developing local potato seed tuber production in Mali to overcome a key constraint in the ware potato value chain The potato value chain is growing in importance in Mali due to rising demand driven by a growing urban population and changing dietary choices. In response to this demand, national production has doubled in the past ten years from 114.478 t in 2007 to 251.558 t in 2017. This is however still below the estimated national demand of 500 000 t, and around 200.000 t of potatoes are imported each year.

In 2015, AFC15 conducted a value chain analysis of the potato value chain and potato seed supply was identified as a key bottleneck. There is small-scale local production

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As part of a contract for Deutsche Gesellschaft fĂźr Internationale Zusammenarbeit in the context of the German Federal Ministry for Economic Cooperation and Development (BMZ) funded Project “Green Innovation Centres for the Agriculture and Food Sectorâ€?.

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of seed tubers with the University IPR/IFRA16, however the overwhelming majority of seed tubers are imported each year from Europe. This poses a two-fold challenge: (i)

(ii)

High price of seeds (Price of seeds in Mali is roughly twice that in Europe due to high transport costs): this decreases margins at the farmer level, and furthermore the high seed costs create a barrier for poorer smallholders and farmer organizations which cannot afford such high input costs, The European seed production calendar does not meet the optimal Malian production calendar in terms of planting times. According to the climatic conditions planting can occur from mid-September up until December. However, Seed Tubers arriving from Europe arrive only in time to be planted in November.

Potato prices fluctuate significantly throughout the year from 150 FCFA/kg in February (peak harvest) up to 400 FCFA/kg in November. Two strategies enable the farmer to capitalize on better prices: -

Storage of potatoes so that they can sell later in the year, from May onwards for example when the prices are high; Early planting between the 15th of September and the 15th of October. This enables harvesting in December and January when the prices are between 300-250 FCFA/kg. Late planting is not an option as temperatures rise significantly from the end of march which will lower yields significantly (photosynthesis and thus tuber growth is inhibited at temperatures above 30 °C).

Early planting is very difficult with imported seed as European tubers harvested in August. After harvest they need to be sorted, tested and certified for export, and then packaged and transported to Mali. At the earliest tubers from Europe therefore arrive end of October. However, the tubers are mostly still in a physiological state of dormancy which means the tubers cannot be planted for another two weeks. Thus most imported seed can only be planted from the beginning of November onwards.

This makes the potato season very short with high numbers of potatoes being harvested in February driving prices down for farmers. Thus developing a local seed value chain which can be planted earlier in the year would enable farmers to capitalize on better harvest prices in December and January – and help stabilize ware potato prices to a certain extent throughout the season with a more even supply.

Furthermore, it could help lower the entry barrier for poorer smallholders who might wish to produce potatoes but cannot afford imported seeds.

Seed tuber production is long process over 6-7 years with many steps of multiplication from the laboratory (in vitro) through to G0-1-2-3, and then class SE

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Institut Polytechnique Rural de Formation et de Recherche AppliquĂŠe.

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and class E. Class E is multiplied in a last step in the field to produce Class A seed tubers which can be planted to produce ware potatoes.

A quick way to boost availability of Class A tubers locally is not to begin with production from the in vitro stage but to start with the multiplication of imported class E tubers. A feasibility study conducted by the project PAFA 17 in 2016 shows the economic viability of this model: Imported Class A tubers cost on average 1050 FCFA/kg however, multiplication of imported class E into class A costs 430 FCFA/kg.

Developing local seed production requires both (i) the correct framework conditions with a formal seed tuber certification scheme, (ii) testing of the technical feasibility, (iii) capacity building of tuber multipliers.

AFC has therefore conducted the following activities in order to support local seed tuber multiplication: -

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Developed a certification scheme: which includes the definition of a certification protocol, drafting of a manual, training of the national laboratory’s staff and ongoing coaching; In collaboration with the university IPR/IFRA tested the suitability of different varieties for local multiplication; Developed a manual on tuber multiplication and trained key partners; Identified entrepreneurs willing to commit to testing tuber multiplication (this requires investment in irrigation and other aspects from their side); Training and coaching of entrepreneurs throughout the cycle of tuber multiplication; Assisting the entrepreneurs in developing business plans; Supported the IPR/IFRA on research protocols to support seed tuber multiplication; Assisted in marketing of the first years’ production of potato seed; Monitoring of results of ware potato yields from locally multiplied seed tubers.

Projet d’Appui aux Filières Agropastorales financed by LuxDev.

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India: mechanisation as one significant game changer in the potato and the tomato value chains In India18, AFC is has been supporting the potato and tomato value chains in selected states. Local value creation falls far short of the actual potential to generate income for the value chain actors. Production costs are too high while productivity is low. The degree of modernization and mechanization in the value chains is generally low. While India-wide, hundreds of millions of people do not have enough income to overcome poverty, the comparatively low payment of agricultural activities leads to a significant shortage of workers and migration from rural areas. Especially at peak times, human labor is scarce and farmers face losses, as they cannot implement crucial production steps or harvest in time.

At the farm level, income generated depends on the yield harvested, the costs incurred and the market prices achieved. Market prices are extremely volatile in India; individual farmers and even farmer groups have limited ability to influence these. A major parameter a famer can control are production costs. These can be reduced in potato and tomato production primarily through improved irrigation and fertilization, more efficient use of crop protection measures, and reducing labour cost. The cost of external workers forms a significant contribution to overall variable production costs. Wages have increased enormously in recent years. In certain seasons, it is extremely difficult for farmers to find wageworkers at all. To reduce wage costs, operations such as planting, tying, weed and pest control should be mechanized. In short, mechanization is a key factor in order to reduce high labor costs.

To address these issues, AFC implements a diverse set of support activities. The respective structures are analyzed together with farmers and technology innovations are developed, tested and demonstrated on privately operated innovation farms in cooperation with farmer groups and agricultural service providers. While introducing mechanization, certain critical issues need to be taken into account. In our view, mechanization should: • not make agricultural labour altogether redundant, it should in contrast increase their output so that higher salaries can be paid while drudgery is reduced; • not exclude women from participating while acknowledging that women are generally overburdened with tasks; • have a positive impact on the ecology by

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As part of a contract for Deutsche Gesellschaft für Internationale Zusammenarbeit in the context of the German Federal Ministry for Economic Cooperation and Development (BMZ) funded Project “Green Innovation Centres for the Agriculture and Food Sector”

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o reducing number of times soil is disturbed and employ preferably minimum or zero tillage systems; by o reducing chemicals used; and by o increasing the kg’s of crop harvested per litre of water irrigated; • be profitable on a sustainable basis for all parties involved: the manufacturer, dealer, service provider, farmer and the banks; • lower risks (instead of increase risks) of all parties involved mainly through making it possible to finish tasks in window of best opportunity; • take into account: o that size of plots and equipment must match existing investments (like tractor size/hp, wheel basis) while developing options; o that the choice of one type/size of equipment for a certain operation determines the choice of the next operation.

Main steps in developing mechanization include: 1. Include farmers in the development of the equipment and address their local needs: equipment imported from another area often does not fit without modifications.

2. Develop ownership and a user business model: farmers, service providers, custom hiring services (private/government/business) all need a viable business model. This requires that o farmers do request larger numbers of the equipment to become available, in order to make production feasible, and o manufacturers should have capacity to produce.

3. Create a financial support system for farmers, service providers (subsidies by Government, banks supporting loans for mechanization). The government of India has a subsidy scheme for mechanization in which certified equipment when bought by farmers is often subsidized up to 40% of its sales costs. Support manufacturers to get their equipment certified for the subsidy schemes.

4. Develop together with the manufacturing company, local dealers and farmers a strategy that guarantees repairs within 24 hrs after breakdown.

5. Develop an operator training system.

At first, the project tried to introduce potato production mechanization with the help of German firms. The equipment was however found too heavy and large for local farms, as 55hp tractors with counterweight were needed, but are not commonly available. The costs of equipment and operation were too high also, and timely spare part availability could not be guaranteed.

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We tried also locally available equipment developed elsewhere in India, which proved to be too light for local soils as they were developed for sandy soils while in the project area predominantly medium heavy soils prevail. Therefore, it was decided to develop new equipment together with local farmers and manufacturers.

Development started with the import and test of small and well performing equipment. After demonstrations, modifications were made to suit farmers’ conditions and equipment was tested by farmers and manufacturers. Women farmers and labourers were also requested to give their opinion on the required technology.

As a result, a variety of specific equipment for potato and tomato production and harvesting were developed and successfully introduced19 with following exemplary outcomes: • • •

14,000 farmers or 60% of the participating farmers have adopted mechanical planting of potatoes, from almost zero at start of the program.

Two nurseries now employ automatic tray seeders.

The use of the boom sprayer developed reduces time of spraying from 3 hours per acre to 20 minutes. Farmers now also use it in onion cultivation.

As the above case studies demonstrate, solutions to bottlenecks need to be tailor-made to the particular value chain constraints and take into account the actors and institutional landscape. Such solutions can at times require an iterative approach with testing (of a seed variety, or of machinery equipment), adaptation and fine-tuning of the approach (from European, to Indian, to tailor-made machinery), testing again and finally scaling up. It is essential that such solutions are developed in partnership with the direct actors of the value chain as they are the drivers of the value chain and will ultimately be the final decision makers for adoption or not of an innovation or solution to a bottleneck.

Value chain development involves on the one hand addressing key bottlenecks, and on the other hand creating opportunities for upgrading the value chain (3rd step in our value chain approach). Specific activities can be developed for further value addition.

A variety of strategies exists, such as: • lengthening the value chain by introducing new processing stages which might have been done in other countries previously, or which help add value and prevent post-harvest losses for highly perishable products (for example mango juice or dried mango as supply of fresh mangoes surpasses local demand during peak season);

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For example, for potato production: Semi-automatic two row planter, automatic one row planter, automatic two row planter, with and without fertilizer application, Bed planter (semi-automatic), side laying potato harvester, back laying potato harvester, ridger, boom sprayer carried by people, wheelbarrow boom sprayer.

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• entry into new or niche markets: for example, certification schemes (GlobalG.A.P., or organic schemes) may enable farmers and processors to enter higher value (including European) markets; • developing value chains around by-products in order to maximize value addition; • developing new business models such as contract farming in order to engage smallholders into commercial and global value chains and to secure processor supply chains.

The contract farming approach, for example, fosters win-win relationships between larger private players (off-taker or processor) and smallholder producers. Through a more formal agreement, smallholders can benefit from a wide range of support from better quality inputs, to timely loans, to extension services and advice. The processor in turn gets a steady or foreseeable supply of quality raw material and can use or expand their full processing capacity. Contract farming agreements can take many different shapes and deepen overtime (from advance sale agreement to the full-embedded services deal). Fostering these agreements as a development project can be done in a multitude of ways, from training farmers to better meet processors’ requirements, to awareness raising on CF schemes, to capacity building of farmer groups and within the processors to manage farmer groups.

Below we present two case studies. The first from our experience in Côte d’Ivoire on adding value to by-products within the cocoa value chain, and the second explores the topic of contract farming in Nigeria.

Côte d’Ivoire – local processing and valorisation of cocoa and cocoa byproducts Today, around 40% of the world cocoa harvest is produced in Côte d’Ivoire with a yearly amount of 1.2 million tonnes. The production is predominantly done by small and medium-sized enterprises that sell their harvest to large corporations that dominate the global cocoa market. In Côte d'Ivoire itself, the beans are hardly processed at all - the added value and thus the profits are realised in the Global North.

For Ivorian cocoa farmers, the local processing and valorisation of cocoa and cocoa by-products therefore offers a great opportunity to increase household incomes. The uniqueness of the present project 20 lies in the combination of various strategic considerations, which on the one hand should enable cocoa farmers to generate new sources of income by putting waste to value and on the other hand taking

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As part of a contract for Deutsche Gesellschaft für Internationale Zusammenarbeit in the context of the German Federal Ministry for Economic Cooperation and Development (BMZ) funded Project “Green Innovation Centres for the Agriculture and Food Sector”.

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environmental aspects into account. The selected activities will aim to make use of defective cocoa beans, cocoa pods and fermentation juices for: -

The production of cocoa butter from defective cocoa beans for the cosmetic industry; The production of edible mushrooms from a substrate derived from composted pods and the production of bio-compost from the residues of mushroom farms; The production of briquettes from cocoa pods; The production of vinegar and bio-ethanol from fermentation juices.

AFC is working to enhance local processing of cocoa focussing mostly on the use of defective beans (flat, germinated, insect-damaged, mouldy, slaty) instead of discarding them. Since defective beans deteriorate the quality of merchant cocoa, their elimination is an absolute necessity. However, purchase prices offered for these nonstandard beans are not sufficiently remunerative. The direct valorisation of these discarded cocoa beans appears therefore to be a major orientation to be favoured in order to achieve the double objective of increasing the income of producers and improving the quality of commercial cocoa. Discarded cocoa beans are still ideal for obtaining cocoa butter for cosmetic products, for example high quality soap or creams.

The marketing of cocoa butter represents an economic opportunity for new or existing SMEs in the cocoa sector since the current price of cocoa butter marketed by a few artisanal producers is currently around 10.000 FCFA/kg.

Besides the local processing of defective cocoa beans, several possibilities for the utilisation of by-products of cocoa production are being tested and analysed, e.g. the valorisation of cocoa pods or fermentation juices. Cocoa pods, which are usually left to rot on the ground, can for example be used in various innovative ways. In collaboration with researchers, it is currently being tested how composted and pasteurised cocoa pods can be used to produce a substrate suitable for mushroom production - a sector with high potential that is not yet very developed in Ivory Coast.

The objectives of this activity are, on the one hand, to demonstrate the technical and economic feasibility of mushroom production using the cocoa pods as a substrate and, on the other hand, to train producers to set up profitable production units. First calculations indicate that 1 kg of cocoa pod dry matter turned into a substrate can be used for the cultivation of 408-845 grams of mushrooms. For a 5 ha large farm, this translates to a possible production of 1.546-3.202 kg of mushrooms which can be sold at 2.000 FCFA/kg. In addition to the direct economic aspect, the mushroom production project was also selected in view of the nutritional value of mushrooms: mushrooms are rich in vitamins (B1-B2-B3-B7-B12-K-C), mineral salts, proteins and fibres and are low in fats and sugars and can therefore contribute to the nutritional balance of populations in both rural and urban areas.

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Another form of valorisation is the briquetting of cocoa pods in order to produce a solid alternative fuel which can be burned like wood or charcoal but which does not intensify deforestation and thus contributes to the protection of the environment and global warming. Briquettes have better physical and combustion characteristics than the initial waste due to higher bulk density, have lower moisture content and can be used at household and industry level. 1 kg of briquettes is equivalent to 2.44 kg of firewood and 0.57 kg of charcoal. It is planned to use these briquettes in replacement of fuel wood for the pasteurisation of the substrate needed for the mushroom production mentioned above.

Another waste product that can be further processed is the juice obtained from fermentation of cocoa beans. These fermentation juices are usually not collected and simply seep into the soil. By using special fermentation boxes, it is possible to collect 306 to 325 litres of fermentation juices per tonne of fermented beans. For an average cocoa plantation of 5 ha, this translates into an availability of 765 to 812 litres of fermentation juices, which can be converted into vinegar or ethanol for pharmaceutical/medical or energy use.

Figure 2: Cocoa By-Products Value Chains

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Contract Farming in Nigeria Taking the tomato value chain in Nigeria as an example, the core problem lies in seasonal gluts in fresh tomato production and wastage of up to 45% linked to poor production and post-harvest handling. At the same time Nigeria observes significant imports of processed tomato (such as tomato paste and concentrates).

Major donor funded effort has been put into the development of the tomato sector over the last decade with considerable focus on the creation of alternative markets to the fresh tomato market. Also private sector investment in processing capacity has increased based on the commitment of the Federal Government to apply increasing tariff barriers to the import of tomato pastes and concentrates and eventually to restrict their import.

However, in the absence of appropriate knowledge about good production and postharvest handling practices, smallholders have difficulties to attain the product quality and quantity that is demanded by the processors.

Against this background, AFC21 initiated partnerships with private sector actors to jointly work on viable solutions for smallholder tomato producers that simultaneously serve the interest of the processor in having a reliable supply of high quality products.

Figure 3: Contract Farming Model Support provided by AFC comprises tailored Capacity Building of selected lead farmers that are located within the supply area (cluster) of the private partner. CB measures comprise: - Cooperative and organizational development for selected groups; - Farming as Business (Farmer Business Schools); - Improved Agricultural Practices targeted to the specific needs of the processor (e.g. variety); - Training of farmers on Harvest and Post-harvest handling practices including aspects of sorting, grading and weighing, depending on the processor’s needs; 21

In the context of the Nigerian Competitiveness Project (NICOP) co-financed by GIZ and EU.

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- Establishment of demonstration plots with improved varieties that are suitable for processing.

In turn, the private sector partner ensures appropriate and timely selection of locations and mobilization of farmers, and prepares all economics of production such as seed varieties, water access, production inputs, extension support, etc.

Support could be extended – such as done in another AFC-implemented project in Nigeria22 operating on maize, rice, cassava and Irish potato - to train contract farming facilitators to foster the discussions between farmer groups and processors and to negotiate contracts in a balanced fashion. Through the facilitator, contract contents can be better explained to small-holders and expectations on both sides can be adjusted, all with the hope that the commitment will be better honored if understood and mutually agreed.

All trainings are delivered in a Training of Trainer (ToT) format allowing trained lead farmers to “step down” their knowledge to their neighbor farmers. Gender inclusion is promoted and ensured in all activities to also improve economic opportunities for women smallholder farmers.

The case study from Nigeria clearly shows the importance of working with key private sector players. Under the right conditions, larger processing units are willing to invest in smallholder farmers (providing training, inputs etc.) in order to guarantee quality and continuous raw material supply. In India, the collaboration with the private sector was equally important with regard to developing new machinery with existing manufacturers. On the other hand, the case studies from Côte d’Ivoire and Mali highlight the importance of technical innovations and collaborating with research institutions both locally and abroad with regard to developing new products and processes. Partnerships with both the public and private sector are key for the development of value chains.

This brings us to the fourth and final key step for value chain development which we define as “Institutional Strengthening”. This encompasses the development of both horizontal and vertical linkages. By horizontal linkages we mean linkages within actors at one level of the value chain- for example a farmer organization, or processor cooperative, association of traders, etc. Vertical linkages are between the different stages of the value chain. These can be commercial linkages through formal agreements and contracts, and organizational linkages such as Industry Organisations or Value Chain Committees, which group all families of actors from the different stages of the value chain together. Such organizations are key for developing a political voice and momentum for value chains. Ultimately, certain hurdles within value chains can only be 22

As part of a contract for Deutsche Gesellschaft für Internationale Zusammenarbeit in the context of the German Federal Ministry for Economic Cooperation and Development (BMZ) funded Project “Green Innovation Centres for the Agriculture and Food Sector”.

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overcome with action at the macro-economic level. For example, developing a key strategy for fruit-fly control in Ghana in order to be able to legally continue exporting to the European Union, or reducing imports of subsidized rice when trying to develop the local value chain. These organizations can lobby for political change to provide the correct policy and legal framework to support their value chain. Furthermore, vertical linkages and communication are essential for setting standards and improving quality throughout the value chain.

The last case study we present documents our experience with the Mango Round Table in Ghana.

The Mango Round Table – a vibrant platform for the Ghanaian mango sector The Ghanaian mango industry contributes significantly to employment creation and the generation of foreign exchange. Over 6,000 people are employed at the processing level alone, adding value to mangoes through the production of dried fruits, fresh cuts, juices etc. In addition, over 10,000 people work on mango farms in Ghana. Exports of mangoes (fresh and processed) to the EU have tripled since 2013. Ghana has become the third biggest exporter to the EU. The Mango Round Table is a platform for the Ghanaian mango sector. It has been established in 2014 and is hosted by the Federation of Associations of Ghanaian Exporters (FAGE). The Mango Round Table is a stakeholder-led initiative that brings together farmer representatives, processors, input dealers, service providers, financial institutions, researchers, extension agents and policy makers to foster the export potential of Ghanaian mangoes. It provides a framework for value chain actors to meet on regular basis and discuss opportunities and challenges. The Mango Round Table is held three to four times a year.

Over the years, many initiatives originated from decisions made at this forum. For instance, the stakeholders provided valuable input to the dossier of the Ghanaian Plant Protection Organisation, which was submitted to the European Union regarding the control measures of the fruit fly. This prevented import restrictions of Ghanaian mangoes to the EU. Moreover, results of trials and demonstrations on new mango varieties and pest & disease management techniques have been shared. The Mango Round Table is also engaged with the organisation of sector promotion events like the annual Ghana Mango Week and the participation of mango producers and processors at international trade fairs such as Fruit Logistica in Berlin and other B2B events.

AFC under the Market Oriented Agriculture Programme (MOAP) has been supporting the Mango Round Table since its inception with logistic and organisational support. In addition, AFC through MOAP continuously supports the Mango Round Table by providing technical inputs and sharing relevant updates to the sector.

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5.4 Discussion – Strength and limitations of the value chain approach The beauty of the value chain approach lies in its acknowledgment that production must be linked to demand, and that the flow from farmer to consumer needs to be effectively organized. The holistic nature of the approach - analyzing the entire value chain, identifying core bottlenecks that are typically interlinked, developing strategies to address them in a coherent manner and to add more value, and institutional strengthening – reduces the risk for isolated activities (such as the promotion of a crop without securing the market) and potential negative consequences.

However, it also lies in the nature of a given value chain to concentrate on the production of one specific crop. This bears the risk at farm level of putting too much focus on only one crop that might trade off with the cultivation of other (subsistence) crops and the use of resources such as land and labour. Here, it has to be kept in mind that diversified farming systems are key for risk mitigation, good land management, and environmental sustainability. The livelihood of a farm should not be put at risk by rigorously introducing a (new) value chain.

At the farm level, before choosing to invest in or step up the production of a crop for a particular value chain it is important to ask the following questions: • Does this crop fit into the farm concept?

• Is it possible to achieve - with regards to sustainable production - sufficient crop rotation?

• What risks does this crop entail, especially with regard to weather risks and changes in market prices?

• Is the recommended crop/value chain within the agricultural entrepreneur's field of interest?

• Is sufficient know-how available or can it be ensured by further training and advice?

• What requirements does a new value chain place on the agricultural enterprise in terms of financing and liquidity?

• Can the necessary work be done in time; is there any seasonal labour available?

Value chain analysis may reveal power imbalances that only allow for little value addition at the local level and often present barriers to participation in more lucrative activities. Benefits are likely to be skewed in favor to the downstream segments of the value chain. A frequent concern is to find ways to integrate small producers into more market-oriented value chains, both domestic and export-oriented. A value chain approach can help to tackle these imbalances by introducing activities that are adding value and are accessible to the so far disadvantaged actors - such as the local valorization of byproducts illustrated in our project example from Côte d’Ivoire.

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However, redistribution of value addition and corresponding shift of power along the value chain can lead to other groups losing out, and conflicts might be a result. Here, care needs to be taken that spillover effects of value chain development materialize locally and without excluding actors. In this regard, creation of additional seasonal job offers does not suffice to lift poor people above the poverty line, but employment opportunities need to result out of the growing agricultural sector and corresponding service sector (e.g. input provider, renting of machinery).

Several evaluations of development projects revealed that the poorest population group does not necessarily benefit from value chain development. Reasons are lack in required capital (land, labour, financial resources) that restrict their ability to participate in many value chain activities. Here, separate targeted initiatives are needed to not leave anyone behind.

Analyzing the entire value chain also means identifying segments and its actors and institutions of the value chain. This is decisive in the establishment and maintenance of effective communication between and among the different actors and an information flow that allows for informed decision-making. The establishment of dialogue platforms - such as the Round Table illustrated in our project example from Ghana – allows information to flow from down to up-stream (e.g. price information and quality requirements) and from up- to down-stream (quantity, timing and location). This does not only lead to benefits for the micro level, but may also positively affect the meso and macro level. Well-established, informed and functioning value chain institutions will be in the position to name political bottlenecks and lobby for better conditions at the policy level.

5.5 Conclusion In our experience value chain development in the first step is directed towards key levers for solving bottle necks or creating new value-addition opportunities. This often involves engaging with lead farmers, innovators and investors throughout the value chain capable of driving change. At a later stage poorer groups can be included and benefit from the development of agricultural value chains. Job creation at the processing stage is an obvious option for including poorer segments of society, however many of these jobs are more likely to be in peri-urban environments closer to end markets- and therefore not an option for the rural poor. At the farm level there are opportunities to include poorer smallholders in higher-value value chains by (i) helping overcome barriers to entry (training, access to finance, certification standards, lowering input costs etc.), and (ii) developing new business models (linking with offtakers and developing partnerships with processors, etc.). However, there are limits to how much the poorest, for example landless farmers, can engage in and benefit from such models. For such groups other targeted social programs will be required.

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Furthermore, we have to take into consideration the role of rural-urban migration. Many poor farmers will not stay in rural areas, in particular the younger generation will move to cities – this is where job opportunities will need to grow.

Private investments aiming to make a profit in the long run will play a key role in developing agricultural value chains in the future. Investments in local processing and packaging units lead to direct job creation, but also an increased local demand for produce from smallholders, creating an opportunity for them to engage in higher-value markets. This is where we, as an international consultancy in cooperation with local extension services, can play a clear role bridging the gap between rural development objectives and private sector investments in order to develop sustainable value chains benefitting all value chain actors from the smallholder to the private investor and finally increase incomes for the rural population.

Acknowledgements This article is a co-creation with the contribution of many AFC colleagues. We would like to thank Udo Gergaut, Johannes Geisen, Virginie Duthoit, Matthias WebendĂśrfer, Noelie Svara and Nina Thurn for their valuable support. We would also like to take this opportunity to thank all our experts in the projects that bring our value chain approach to life.

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