Business Solu+ons for a Be/er World
A/rac+ng Investment into Post-‐ Harvest Systems
Eduardo Tugendhat, CEO CARANA Corpora+on
The Cost of Poor Post-‐Harvest Systems If you were a credit or business analyst, what would you think of a project where • 20-‐40% of output is lost by the Dme it reaches the end buyer • LogisDcs costs make up 55% of market price • 50% of these logisDcs costs are avoidable?
Yet this is a normal situaDon in developing world agriculture. Business Solu+ons for a Be/er World
CARANA’s Transport and LogisDcs DiagnosDc Breaks down these costs, by commodity, marke,ng channel and transport corridor.
In this presenta,on, we will • Review examples of logis+cs costs and what generates them • Explain our approach to a/rac+ng investment to improve post-‐harvest system Business Solu+ons for a Be/er World
Post-‐Harvest LogisDcs Costs Millet/sorghum: Sikasso-‐Dakar corridor Inefficiences
% farm gate price
% market price
% extra cost
Farm/village logis+cs
34
22
58
Market logis+cs
15
10
68
Transport
34
22
33
Administra+ve
3
2
36
Informal
6
4
100
Total
92
59
53
Drivers: • • • • •
On farm: fees for de-‐shelling machines and village level storage losses Market: re-‐bagging costs (to remove impuri+es), handling costs and storage losses Transport: Service prices Administra+ve: Axel load fines due to overloading Informal: Bribes paid at border Business Solu+ons for a Be/er World
In dysfuncDonal post-‐harvest systems… • Farmers have no incen+ve to invest if such a high propor+on is lost (Depresses farm gate price; no price differen+a+on for quality)
• Processors seek other sources of inputs (Imports may be more reliable, cheaper, and be/er quality)
• Financing of farmers less a/rac+ve
Business Solu+ons for a Be/er World
And yet…
These extra costs are largely controllable through modest investments and different rela,onships than 50% within More control of private businesses Contrasts with usual approach of seeking government solu+ons (roads, administra+ve processes)
Business Solu+ons for a Be/er World
Strengthening the Post-‐Harvest System via Anchor Firms Is there a business opportunity in high logis+cs costs? • Supply chain management; backward linkages • ROI through higher prices (quality) and savings (lower physical losses, +me/cost to market)
If so, why does it not happen more o`en? • Organiza+onal challenge of working with many small producers and tradi+onal intermediaries (high ini+al costs)
Hypothesis: With help in start-‐up costs and organiza,onal challenges, anchor firms will invest Business Solu+ons for a Be/er World
Project: Paraguay ProducDvo Small farmers tap new, higher-‐value markets through anchor firm investments in the supply chain
Fruit juices
Sesame
Organic sugar
Manioc
Processor invests in handling and extension system for producer groups to grow passion, other citrus for export
Exporters invest in traceability system to succeed with small suppliers in highest-‐value Asian markets
Co-‐op invests in processing plant and logis+cs to meet market requirements
Starch processor invests in plants and logis+cs to create a commercial channel
Business Solu+ons for a Be/er World
Project: Paraguay ProducDvo Features of CARANA approach
•
Co-finance up to 50% of start-up investment and extension capacity
• Organize system participants in new, more direct relationships (Key role of grading and pricing system to reward quality)
• Leverage more financing for small-scale producers
Business Solu+ons for a Be/er World
Case Study: CODIPSA A new market channel for manioc Invested $2M per 3 X 100 ton/day factories serving 35 Km area each (IDB and USAID grants ) Demo plots, extension, equipment for tes+ng starch content
Contract with producer groups with fixed price and supply schedules • • • •
Intermediaries replaced by producer commi/ees Financing facilitated for small farms (6X more for manioc than any other crop) Financing allows producers to harvest over 6-‐month period Grading equipment to measure starch content (encourages be/er varie+es/quality) Business Solu+ons for a Be/er World
Case Study: CODIPSA Results Generates net income of $500/ha • Yields and land under cul+va+on both increase • CODIPSA plants profitable ($10 M in revenues, $2 M profit) • Planning two more plants ($9 M investment) Business Solu+ons for a Be/er World
Case Study: CODIPSA A new market channel for manioc Home use
Fresh market
Industrial
Market share
70-‐80
15-‐20%
5-‐10%
Farm logis+cs
Keep in ground Sold to middleman un+l needed when cash needed
Per contract plan with producer group
Transport
NA
350 PYG (to city)
50 PYG (max. 35 km)
Market logis+cs
NA
Spot market; 20% rejec+on
Fixed price with bonus
Price (market)
NA
680-‐800 PYG
300 PYG (world price)
264-‐360 PYG
250 PYG plus bonus
NA
$520/ha (avg. yield)
Price (farm gate) Net farm income
NA
Business Solu+ons for a Be/er World
Project: Market Linkages IniDaDve 33 co-‐financing grants in 6 East African countries support anchor firm investment in post-‐harvest staple distribu,on
Village aggregaDon centers
Grain bulking warehouses
Crop condiDoning
(drying, grading, shelling, bagging, storage)
SMS-‐based market informaDon system
Business Solu+ons for a Be/er World
Project: Market Linkages IniDaDve Results aRer 18 months $5.2 M private investment in backward linkages ($4.5 million from USAID) • •
Private share ranges from 76% in Uganda to 21% in DRC USAID share includes farmer training on crop condi+oning
21,000 farmers have beYer market access; training 46,000 MT of grain flowing through system Business Solu+ons for a Be/er World
Case study: AgroWays, grain trading company Commercializa,on of maize in Uganda $536K investment (50% cost-‐ share) to: • Double grain bulking capacity • Renovate 4 village aggrega+on centers and build 4 more • Open market access to 1,200 farmers in 150 farmer groups • Triple drying capacity • Improve public storage for 3,000 smallholders
Business Solu+ons for a B e/er World
Case study: AgroWays, grain trading company Commercializa,on of maize in Uganda AgroWays licensed to operate a warehouse receipt system. Offers op+ons to smallholders: • Condi+oning, bagging, public storage on fee basis so producer groups can store, sell grain to third par+es • Direct purchase of grain from producers (trading company) Business Solu+ons for a Be/er World
AYracDng Private Investment into Post-‐Harvest Systems is EssenDal—and Profitable Farmers’ perspecDve
Investors’ perspecDve
More direct access to markets and higher Ensures reliable and higher quality source prices of supply Enhances ability to meet market requirements (quality, cost, +me)
Avoids tying up capital in farm produc+on
Creates op+ons (market channel, +ming)
Posi+ons firms for differen+ated market segments
Facilitates access to finance
Enhances social responsibility
Provides new technology (and way to pay Replaces inefficient intermediaries for it)
Business Solu+ons for a Be/er World
Factors LimiDng Investment Staple food crops somehow not considered “cash crops” Commercializa+on key driver for investment
Perceived difficulty of working with smallholders Complexity of working with small-‐scale producers ROI requires producers to adopt new prac+ces but extension expensive to organize
Most par+cipants prefer the status quo Aversion to risk and lack of trust Pioneers (producer groups and anchor firms) must show the way
Business Solu+ons for a Be/er World
Success Factors for AYracDng Investment Clear value proposi+on (why bother?) • • •
Access to new and/or higher value market segment Opportunity to change business model and benefit from new prac+ces Fair share of benefits between producers and anchor firm
Key role of external “facilitators” • •
Complex process of structuring project, bringing together necessary players, aligning interests, accessing addi+onal finance Be “honest broker” to overcome lack of trust
Donor role Alleviate risks and fears through par+al subsidy Business Solu+ons for a Be/er World
Thank you
www.carana.com www.paraguayproduc+vo.org.py Business Solu+ons for a Be/er World