(Photo extracted from One Acre Fund Report) SOCIAL BUSINESSES POWERING SMALL HOLDER AGRICULTURAL PRODUCTIVITY FOR POVERTY REDUCTION IN EAST AFRICA: THE CASE OF ONE ACRE FUND
Emmanuel Kivanyuma Waiswa
Summary This paper aims to uncover the incredible contribution that social businesses engaged in agriculture have had on increasing agricultural innovation and powering incomes for the small holder farmers in East Africa. INTRODUCTION Investments in agricultural value chain contribute to economic growth, agricultural development, food security, and poverty reduction. “Affordable financing mechanisms can help farmers and agricultural businesses to build assets, enhance their credit rating and build self-sustaining, profitable enterprises” (AGRA et al., 2009). Since the late 1970s to mid 1980s, many African countries have implemented macroeconomic, sectoral and institutional reforms aimed at ensuring high and sustainable economic growth, food security and poverty reduction. Some recent agricultural growth accelerations notwithstanding, the sector’s growth remained insufficient to adequately address poverty, attain food security, and lead to sustained GDP growth on the continent (Dessy et al., 2006 and World Bank, 2008). Agriculture Sector GDP Contribution All East African countries alluded to in this paper Kenya, Tanzania and Uganda - can be characterized as “agriculture-based,” that is, agriculture is the backbone of these economies (World Bank, 2008). Notwithstanding the variations between the countries, agriculture remains the main contributor to the GDP, contributing 47 percent and 43 percent, respectively. In Uganda and Kenya, however, the rapid development of the service sector with a growth rate of about 9.5 percent, has outpaced agriculture, contributing 45 percent and 60 percent of the GDP, respectively, far above agriculture’s contribution of 30 and 34 percent. Nevertheless, agriculture still accounts for about 75 percent of the labor force in all the study countries (ADB , 2009).
Small Holder Agriculture in East Africa Agriculture in the East African arm of the continent is dominated by smallholder farmers who occupy the majority of land and produce most of the crop and livestock products. Smallholder farming is often referred to as family farming, subsistence farming and lowincome farming. This category of farmers represent an organized group of the world’s poor and yet they are the most hardworking individuals the world has seen. Even after investing such efforts, the key long-standing challenge of the smallholder farmers is low productivity stemming from the lack of access to markets, credit, technology and in recent years compounded by the volatile food and energy prices and very recently by the global financial crisis. On the other hand, African agriculture is believed to have an enormous potential for growth given the continent’s natural resource endowment (FAO, 2009). Despite the number of sound agricultural policies adopted by most countries, implementation has been lagging. Moreover, growing disenchantment of some donors with the sector amplified the gap between policy formulation and implementation. Continued involvement of a few donors, including the African Development Bank (AfDB), notwithstanding, investment in agriculture has suffered from a declining trend in several decades. The lack of affordable, smallholder farmer focused financing among other critical setbacks, remains a major obstacle for farmers who wish to raise farm productivity. In Uganda only 30 percent of smallholder farmers use improved seed and fertilizers (AGRA et al., 2009). The Ugandan government has initiated collaborative working relationships with different banks to offer agriculture loans. However, agriculture as whole still receives less commercial lending from banks and even then much of the commercial agricultural financing goes to large-scale agriculture. African financial institutions avoid lending to smallholder farmers and to the agriculture sector for a number of reasons including: farmers’ lack of usable collateral; the
high costs associated with servicing remote clients; and interrelated risks such as unreliable rainfall, lack of irrigation, pests and diseases, and price fluctuations (AGRA et al., 2009). With respective GDP growth rates of 6.5 percent, 7.0 percent and 7.3 percent in 2008, Uganda, Kenya and Tanzania have also been able to realize high growths of GDP per capita, but the contribution of agriculture to growth in these economies has been mixed. For example in Uganda, agriculture contributed only marginally to Uganda’s rapid GDP growth of 2005 – 08, Instead, growth was driven by services, in particular trade. This low contribution of agriculture to the overall growth holds for other countries as well, with exception of a few years in Kenya and Ethiopia (ADB, 2009). But can small holder farming lead to poverty alleviation? Its quite a wide spread debate on the rationale for small holder agriculture especially in the face of extreme poverty levels in the sub Saharan Africa. There have been calls for commercialized agriculture as a true messiah for the rural poor. International macroeconomic policies for structural adjustment pioneered by the Bretton woods institutions of International Monetary Fund and World Bank have seen many African governments cut public spending but very much intentional on small holder food crop farming in favor of – commercial agriculture. While the aforementioned policies have not had a trickle-down effect in most African countries but given the limitations of the focus on this paper I shall not indulge into much analysis in that regard. By definition, agricultural growth is the primary source of poverty reduction in most agriculture-based economies. The expansion of smallholder farming can lead to a faster rate of poverty alleviation, by raising the incomes of rural cultivators and reducing food expenditure, and thus reduces income inequality (Mellor 1966, 1976; Magingxa and Kamara 2003; Diao and Hazell 2004; Resnick 2004; Bahram and Chitemi 2006; Anríquez G. and K. Stamoulis, 2007; and World Bank, 2008). As observed by Ravallion (2001), a rise in average household income by 2 percent leads to a fall in the poverty rates by about 4 percent on average. The 2008 World Development
Report also observed that GDP growth originating in agriculture is about four times more effective in reducing poverty than GDP growth of other sectors (World Bank, 2008). Where is the Private Sector? Most interventions in agriculture have been largely advocated and championed for by the government and to a financial backing the donor community. Such kind of operation has suffered its bitter share of misery and failure due to the institutional mal functioning of most governments of Africa, the scandals surrounding the National Agriculture Advisory Services (NAADS) programme of Uganda though very innovative and yet focused – suffered the political, social and economic wrath of the Ugandan reality. The private sector has been identified as one that fears the agricultural zone given the unpredictable environment governed by nature’s mercy. This leaves the challenge resting on the shoulders of the government and non for profit organisations. But wait – there is a new trend of emerging for profit enterprises that have managed to not only defy the conventional way of doing business but doing it in an even right way. These such initiatives have come to be known as social enterprises. Social Enterprises / Businesses Sometimes referred to as impact business among other names, these initiatives defy the traditional compartmentalization between development sector and private sector. The individuals that run these enterprises equally drift away from popular distinction created by having to belong to one side but instead chose to be both as they have found meaning and relevancy for their initiatives. These enterprises do not prize profit per see, they function along “a Tripple bottom line”. For those of you who are unfamiliar with the term, Farouk Jiwa- Director, Honey Care Africa, Kenya explains that “it is basically trying to generate environmental, social, and economic values simultaneously. It is possible to do this and this is what we are trying to do in many of our own special kinds of ways. we are profit driven; at
least in my case it is profit driven. So the incentive to always find and drive efficiencies; and to move things forward in a way that makes sense is of paramount importance. And, of course, making linkages to market is number one priority”. While as these initiatives score highly for having bridged the gap between for profit and non for profit- establishing a new age – they have by far made the challenge to distinguish between the sectors an even greater challenge of the new century. Those that categorize themselves as social entrepreneurs have an equal burden of having to balance the social need but also not losing the profit goal of their undertakings. The rise of this wave of business has been largely attributed to the failure of the conventional model of humanitarian work, as Muhammad Yunus confirms in his book “Creating a World without Poverty, “the not-for-profit charity, is well-intentioned but is forever dependent on philanthropic whim and market performance and thus is limited in its ability to mitigate poverty”. As extreme poverty increases around the globe, Yunus says, leaders will recognize that financial markets are vulnerable to poverty-related phenomena and that "poverty is perhaps the most serious threat to world peace." Yunus offers a solution to this predicament: "social businesses," which he calls "the missing piece of the capitalist system." The challenge today is not to challenge the existence of social businesses nor their relevancy but rather finding ways of distinguishing it from traditional philanthropy? A social business begins with a goal such as better nutrition, affordable housing, access to education, or any other activity that contributes to poverty elimination. The social business secures start-up capital and attracts investors, but unlike a traditional business — as well as business-philanthropy ventures — does not pay dividends to its investors; instead, all profits are reinvested. The business is evaluated on the basis of its efficiency and effectiveness — the latter being the number of families lifted out of poverty. And it competes with other social businesses as well as traditional businesses to deliver a quality product and sustain itself (Kathryn Pyle ).
In the book, Yunus discusses two kinds of social business. The first, owned by the investors, has a social goal. The second, owned by its customers, doesn't need to have such a goal — it could be any profitable business, because the "social" goal is the economic betterment of the poor. What is breathtaking about these initiatives is their consultative – bottom – up approach which puts the poor at the centre of the design of the business and through it either secure a job or obtain credit, depending on the goals of the business. This is a major paradigm shift from the traditional unsustainable nature of “give and take ‘’ which overlook the inherent capabilities of the poor and do not lead to incomes and within them create a vulnerability trap which transcends into a dependency syndrome. "The single most important step [poor people] can take is to learn how to make more money." writes Paul Polak, one of the founders of International Development Enterprises (IDE), a nonprofit that promotes marketbased principles as the solution to poverty in the developing world. Until community interventions incorporate the target and create opportunities for increased incomes, poverty shall remain the greatest human development threat to battle for a while. This partly explains the wider acceptance of micro credit programmes and their incredible contribution towards increased choices in the lives of poor people. Social business wherever they exist have managed to accelerate, respect and exploit the creative and entrepreneurial capacity of the rural poor. The commitment of individuals towards a social business is enough substitute for trainings that characterize most of the undertakings by the non for profit. These social businesses have emerged in almost every sector of business life, there are those engaged in renewable energy, education, water and sanitation, rural health access, small holder agriculture among others. For clarity lets have some names that will make it easier for many of us – Villgro in India , BRAC in many sub-Saharan Africa , Hagar in
Cambodia, Streetwires in South Africa, Gone Rural in Swaziland, Chef in Kenya, VegCARE in Kenya, Cemex in Mexico and for this paper there is One Acre Fund in Rwanda , Burundi and Kenya. ONE ACRE FUND One Acre Fund is a start–up non-profit in Kenya, Rwanda, and Burundi that is innovating a new way of helping farm families to achieve their full potential. One Acre Fund works with farmers alone and puts farmers at the forefront of its work – through their low level contact with the farmer, developed a simple solution that enables every farmer family to double farm incomes on every planted acre. Farmers living in remote places need support in more than one area. This kind of support is given through a comprehensive “market in a box” 1. Farm inputs on credit: provision of an $80 loan in the form of basic seed and fertilizer. 2. Delivery: Inputs are delivered within walking distance of the farmer member 3. Training: The farmer is provided with training on correct usage of farm inputs, which dramatically improves farm profitability. 4. Harvest sales: The farmer is then enabled to sell their harvests at a significant profit. This Incremental approach holistically meets the needs of small holder famers, without inputs, there is no production and without trainings the outcomes are unpredictable and losses become more expected. Having the harvest is not enough without a sale. Such an approach lays an opportunity for small holder farmers to break through the vicious cycle of poverty given the increased household incomes.
The entire premise is upon the background that with a "market bundle" that includes education, finance, seed and fertilizer, and market access the farmers are guaranteed of a thousands of harvests and measures of more than 100% average gain in farm income per acre which transcends into increased incomes. The social business mind set, Well of course like any other contemporary initiative, social businesses also have their challenges and for any one that is pro social business has to take note that it won’t be a walk in the park. The first such challenge is to balance the social with the commercial, imagine the desire to be a global business but with a focus on small holder agriculture – well it does not create much commercial sense. Social entrepreneurs have to live with the burden of balancing competing interests and settling for what they believe is a viable substitute.