Agricultural Development
Economics Division (ESA)
Session 5: Case 2 PPPs for Value
Chain Development (VCD)
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Agricultural Development
Economics Division (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
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Agricultural Development
Economics Division (ESA)
What is the public good?
• Food security
• Import substitution
• Food safety
Broad-based industry development
• Inclusion of smallholders & SMEs
• Strengthen rural institutions
• Increase productivity & competitiveness of
domestic actors
• Sustainable food systems
• Environmental management
• Poverty reduction
• Rural employment creation/ social
stability
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Agricultural Development
Economics Division (ESA)
Types of VCD PPPs
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Agricultural Development
Economics Division (ESA)
Two types of VCD PPPs
Sub-sector (Meso level)
Value Chain (Micro level)
• Encourage investment into sub-sector as a
whole
• Upgrade established VC
• Focus on increasing productivity
• Focus on Value addition & product
differentiation
• Increase farmer livelihoods/food security
• Includes territorial approaches
▫ Agro-processing-certification
• Quality & traceability
• Meet end-market consumer requirements
• Stimulate rural economies
▫ Organic, FairTrade, Rainforest Alliance
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Agricultural Development
Economics Division (ESA)
PPPs to develop Meso-level VC
Institutional framework
Design
•
Supportive policy incentives
and regulations
• Large scale commodities
•
Long term commitment
• Emphasis on production and
inclusion
•
Formal PPPs
•
Several private partners
▫ oil palm, sunflower oil, sugar
• Environmental impact
considered
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Agricultural Development
Economics Division (ESA)
Meso-level PPP VCD
Subsector/
Value Chain
PPP Purpose
Total investment
USD$
Palm oil export Extend oil palm cultivation in conflict areas 6 million
Colombia
21% public/64% private
14% others
Rubber
Revitalize deteriorating industry
37 million
Ghana
100% public/private
(undisclosed)
Palm oil export Create economic growth in remote areas
16.7 million
Indonesia
37% public/63% private
Sunflower oil
Uganda
Address import substitution & poverty
reduction
US$ 850 000
41% public/59% private
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Agricultural Development
Economics Division (ESA)
PPPs to develop Micro VC
Objectives
Design
• Competitiveness – first mover
• Firm or public sector (APP
programme) as driver
• Interventions at firm level
• Co-funding for standards
• Matching grants POs, SMEs
• Capitalize on high value
market opportunity
• Value addition and product
differentiation
• Support services provided by
either partner, or outsourced
• Important role of farmer
cooperatives/groups
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Agricultural Development
Economics Division (ESA)
Micro-level PPP VCD
Subsector/ Value PPP Purpose
Chain
High quality coffee
Colombia
Sweet pepper
Indonesia
Environmental protection; increased
smallholders income; differentiated
coffee
Greater access to differentiated market
30 million
39% public/58%private
3% other
5.5 million
Public/private undisclosed
Mango processing
Kenya
Greater access to markets/increase
smallholders income
US$ 230 000
Organic banana
Peru
Increase SMAEs and FO
competitiveness
US$ 480 000
10% public/90% private
53% public/41% private/6% FO
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Agricultural Development
Economics Division (ESA)
Role of Public & Private Partners
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Agricultural Development
Economics Division (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 3rd party
certification.
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Agricultural Development
Economics Division (ESA)
Roles of Public Partners
Create enabling env.
Facilitation
• Policies & incentives for investment
• Access to land & rural
infrastructure
• Link to research and
extension networks
• Mobilize farmers/
strengthen POs
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
Monitoring
• Business plans
• Farmer-company r’ship
• Trigger fund release
Evaluation (?)
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Agricultural Development
Economics Division (ESA)
Impacts of VCD PPPs
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Agricultural Development
Economics Division (ESA)
Impacts Meso VCD for farmers
PPP
Impact for farmers
Palm oil export
Colombia
Rubber
Ghana
1 300 employment generated;
60% increase in income for 300 farmers
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
3 880 outgrowers contracted
Secure market at fair prices/ employment generation
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Agricultural Development
Economics Division (ESA)
Impacts Micro VCD for farmers
PPP
Impact for farmers
High quality
coffee
Colombia
Sweet pepper
Indonesia
4 000 coffee growers certified with increased
earnings-target 19 000
Stimulated additional investment (US$3.2 mil)
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
50 farmers exporting
Increase revenue
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Agricultural Development
Economics Division (ESA)
Challenges and Success Factors
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Agricultural Development
Economics Division (ESA)
Challenges in VCD PPPs
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
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Agricultural Development
Economics Division (ESA)
Success factors VC PPPs
• Address enabling env. issues
• Enforceable & equitable contract farming
agreements
• Enhanced legislation (land rights, land laws)
• Governance
• Multi-stakeholder meetings for transparency
• Active role for local gov.
• Tailor design to deliver public good/social
benefits
• Intermediation role for farmer groups
• Reduce bureaucracy to expedite agreements
• Select private partners with record of
inclusion
• Business case
• Market feasibility & VC studies a must
• Robust monitoring
• Develop detailed business plans
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Agricultural Development
Economics Division (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
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