Reflections on the IDH Innovation Forum
Reflections on the building blocks & next steps for efficient service delivery for coffee farming communities in East Africa 1
Reflections on R&R workshop East Africa - 2016
Is renovation & rehabilitation critical for East African coffee farming and if so, how can we trigger investment?
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very business must reinvest to maintain and improve its productive assets and competitiveness in the marketplace. However, we see that coffee farmers in East Africa are not investing enough in their farms, particularly in their rehabilitation and renovation. As a result, we are faced with declining yields and an uncompetitive future. The critical question for coffee farmers, and all who depend on their productivity, is how we can trigger investment in coffee farm productivity, so that coffee farming offers farmers an attractive livelihood and an attractive future.
Organization (ICO) and IDH, The Sustainable Trade Initiative (IDH), to trigger collective thinking and action on coffee farm renovation and rehabilitation in East Africa. Leaders from the government, coffee trade, research institutes and others came together to explore needs and potential actions. Research was presented at the workshop, that provides insight into the needs and motivations of farmers and all actors in the coffee supply chain. The research informs a set of concrete actions that could be undertaken in Tanzania and other East African countries.
To work towards a solution, an expert workshop was organized in Dar es Salaam by the 4C Association (4CA), the African Fine Coffee Association (AFCA), the Deutsche Investitions - und Entwicklungsgesellschaft mbH (DEG), the International Coffee 2
Reflections on R&R workshop East 2016 Forum Reflections onAfrica the IDH -Innovation
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Reflections on R&R workshop East Africa - 2016
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The building blocks of successful renovation & rehabilitation (R&R) schemes
IDH has developed a framework of five essential building blocks for successful R&R schemes, drawing from successful examples from around the world in coffee and other tree crops. These five building blocks serve as the lens through which countries can look at their potential investments in R&R:
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Reflections on R&R workshop East 2016 Forum Reflections onAfrica the IDH -Innovation
BUILDING BLOCKS OF SUCCESSFUL R&R INTERVENTIONS
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Reflections on R&R workshop East Africa - 2016
BUILDING BLOCK 1:
BUILDING BLOCK 2:
Public-private partnerships
Knowledge & technology
Effective investments in R&R require effort from both the private and the public sector, starting with farmers and farmer groups but also critically including government, trade and financial institutions. Investments in R&R are too large and too complicated to be solved by any individual private or public sector actor. Public-private partnerships (PPPs) are needed to systematically and jointly breakthrough obstacles and challenge the traditional roles.
Farmers need to have access to knowledge on how to implement R&R, as well as access to technology to do R&R, this includes having access to good planting materials. Aggregated farmer data is critical for providing the right services to farmers; farm data management needs to be organized to reduce the information asymmetry between all actors in the R&R scheme, to ensure that i.e. financial institutions also have access to reliable farm data (data that is possibly available to other players in the supply chain).
Government needs to play a role as enabler and financier of R&R interventions. A government’s enabling role implies new ways of triggering the availability and distribution of certified planting material and providing a constructive regulatory framework for minimum standards or guidelines on R&R techniques. Government’s financier role implies directing funds towards risk-reduction strategies that can support broader private finance mechanisms.
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Reflections on R&R workshop East 2016 Forum Reflections onAfrica the IDH -Innovation
BUILDING BLOCK 3:
BUILDING BLOCK 4:
BUILDING BLOCK 5:
Blended finance
Delivery mechanisms
Central Coordinator
Tree replanting requires long term financing including grace periods for the first unproductive years, but these loans are perceived to be risky and may have lower returns than most commercial lenders can bear. By blending different types of funding (public risk-reduction funds, commercial finance and grants) and developing risk sharing arrangements, the risk profile and return for R&R investments can become acceptable for both lenders and borrowers.
Getting extension services, inputs and finance to the doorstep of the farmers in a cost-effective way is challenging since farmers are in most cases not well organized or aggregated. When delivering services to farmers, farmer self-selection is key for successful R&R interventions. Farmer need to be “investment ready” to ensure a positive return on investment.
A “central coordinator” is key for having an overview of and for coordinating the different building blocks. Different types of organizations can play this role of a “central coordinator”; a farmer union, a government organization, a private company, etc.
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Reflections Reflections on on R&R the IDH workshop Innovation East Forum Africa - 2016 2015
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What were some of the key learnings during the workshop related to the 5 building blocks? 1 | Investments in R&R will not be interesting for all coffee farmers
The International Institute of Tropical Agriculture (IITA) shared in its presentation that in the Mount Elgon region in Kenya coffee is not always the priority crop for farmers and not all farmers are commercially oriented. When the labor opportunity costs are taken in to account, many farmers are actually losing money on their coffee production. Research in Rakai in Uganda shows that 20% of existing farmers produce 80% of the coffee volume.
2 | A public-private partnership and a strong coordinator was the key success factor in the scheme of FNC in Colombia
These findings show that not all farmers will be willing and be ready to invest in R&R. So R&R services need to be offered to those farmers that select themselves. For the farmer, there are four elements that influence their decision making of investing in R&R; the agronomical element, the financial element, the risk element (risk averse or risk taking) and the food security element. IITA also shared a “stepwise-approach� where farmers would first apply pruning, weeding and mulching before they start to use fertilizers.
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Reflections on R&R workshop East 2016 Forum Reflections onAfrica the IDH -Innovation
FNC explained the crucial role of the government in setting up and operationalizing a large scale scheme for R&R in Colombia. The widespread outbreak of Coffee Leaf Rust disease (“La Roya”) led to a 30% decrease in production and a significant decrease of coffee export revenues. This created the “sense of urgency” for FNC and the Colombian government to act. The government was pivotal in the set up of the scheme. They provided guarantees to the banks that are financing smallholders for R&R. Subsidies were also provided to lower interest rates for smallholders that did not have the full capacity to invest in R&R. There was a strong business case for the Colombian government to make these investments. Coffee is responsible for 21.8% of the Colombian Agricultural GDP, and as such plays an important role in rural areas of the country. To avoid social unrest in these areas and migration to the cities, the government partnered with FNC to invest in the coffee sector (or communities?). At the moment (February 2016), with low coffee prices, the business case for a farmer to invest in R&R in Colombia is not positive. FNC shared in their presentation an idea for other governments, when subsidies are used they should be linked to the coffee price. This means that if the price for coffee were to drop below a certain level, then subsidies would kick-in. In this way, the subsidy would only be used when really needed. This type of back-up mechanism, or stability fund, can be funded by both private and public actors.
3 | There are existing financial mechanisms to help these unconventional public-private partnerships 5 financial institutions participated in the workshop and 3 of them presented the financing mechanisms that are available and working to solve the challenge of R&R development.
and SMEs. Root Capital combines their loans with the provision of technical assistance, as they see that many of the cooperatives and SMEs do not have the full skill set to provide long term loans to their members and the members themselves do not always have the combination of agronomical and financial skills to access R&R loans. The Global Agriculture and Food Security Program (GAFSP) has provides long and short term loans, credit guarantees and equity to support private sector activities for improving agricultural development and food security. In a project in Nicaragua, USD 18 million has been provided to finance farmers for the renovation of their coffee plantations, which are affected by coffee rust. The project is an interesting example of a partnership between IFC, GAFSP, Atlantic (a subsidiary of the coffee trader Ecom), Starbucks and the Inter-American Development Bank (IDB). Atlantic will act as the agent and lender to farmers for the renovation of coffee plantations affected by La Roya. As new coffee trees require three to four years to become fully productive, GAFSP provides funding for bridge financing that enables a three year grace period, and then provides first loss guarantee for up to 25% of the IFC and IDB loans. Opportunity International has entered into a partnership with Grameen Foundation and the Uganda Coffee Farmers’ Alliance (UCFA) to provide access to input finance for coffee farmers. They aim to reach 6,000 farmers in the first year and 7,200 farmers in the second year of the program. In the partnership, UCFA is responsible for farmer aggregation and well functioning producer organizations, the community knowledge workers of Grameen Foundation are responsible for selecting and training of the farmers using mobile solutions and Opportunity Bank for providing the input loans to the producer organizations. The current challenge is to reach sufficient scale for the model to be sustainable.
Root Capital has set up a “Coffee Finance Resilience Initiative” (CFRI) to support cooperatives and SMEs with long term financing for R&R. The CFRI is funded with money from both public and private players, like USAID, the Ford Foundation, Keurig Green Mountain, Starbucks, etc. By using this type of blended finance, it is possible for Root Capital to offer longer term loans with grace periods for repayment of the loans to a number of their cooperatives
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Reflections on R&R workshop East Africa - 2016
4 | There are both farmer organizations and supply chain partners working on R&R and experiencing different types of challenges There were 18 private sector participants, which participated in the workshop and presented their approach to solve the challenge of R&R development. Hanns R. Neumann Stiftung (HRNS) is supporting farmers by maximizing the use of limited land resources by gap filling, improved varieties of coffee trees, and more efficient farming techniques which should lead to improved farmer profitability. HRNS also supports the establishment of nurseries that can fulfill the demand for compact and clonal seedlings. When well managed, a nursery can be an interesting way to diversify farmer’s income. One of the key learnings of HRNS is that farmers need to change their mindset to a more commercial approach to farming, and for that basic record keeping is crucial. Due to a scarcity of first generation seeds and subsidized seedlings, the commercial set up of nurseries can be challenging and thus the availability of seedlings for individual farmer groups can be challenging. Tutunze Kahawa Limited, the Tanzanian subsidiary of Ecom Agroindustrial Corp., offers a holistic service package to 20,000 farmers they are working with in Mbinga province. It is a “farmer-centric� model in which the services package consists of the establishment of nurseries, input loans, soil analysis, GAP training, etc. Their holistic service package, but also their partnership approach and long-term thinking are strengths of their program. Tutunze is facing similar types of challenges as HRNS. Subsidized seedlings and the availability of seedlings affect the sustainability of the nurseries that have been set up. Furthermore, new taxes and fake inputs affect both the business of Tutunze and the trust of the farmers to invest in R&R.
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Reflections on R&R workshop East 2016 Forum Reflections onAfrica the IDH -Innovation
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Tanzania
After learning and exchange sessions the workshop participants broke into groups to identify the building blocks already in place in Tanzania and other East African producing countries, what needs to be in place, and the roles for both the public and private sector that potentially need to shift to establish effective R&R schemes.
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Reflections on R&R workshop East Africa - 2016
What is in place in Tanzania?
Some first ideas on roles to be played
Knowledge & technology
Blended finance
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Public and private sector players, the Tanzanian Coffee Board and the Coffee Partnership Tanzania, worked together on the establishment of a “National Sustainability Curriculum” for building the capacity of farmers. With this harmonized curriculum farmers better understood sustainability issues and how to improve yields
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The Tanzania Coffee Research Institute (TaCRI) that has developed improved and disease resistant coffee varieties
Knowledge & technology
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Public-private partnerships
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There is some first interest from a supply chain partner to work with a risksharing scheme with a “Development Financial Institution”, and a local financial institution to support smallholders with finance for either rehabilitation or renovation
Public-private players are already working together on the National Sustainability Curriculum. This can be used as a launching pad for further public-private collaboration
What needs to be put in place in Tanzania?
TaCRI has indicated that they see a role to play in increasing the “acceptance” level of new varieties. In some areas, there are seedlings available but they are not used by farmers that are surrounding the nursery
Coordinating role
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IDH, together with its partners DEG and Café Africa, is willing to see whether it can drive the exchange of information and experiences in a multi-stakeholder setting
Delivery mechanism
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There is a need for “farmer self-selection” based on farmer information to understand which farmers are “investment ready”
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With other models for disbursement of subsidies for seedlings, other players could become functional in the multiplication and distribution of seedling
Public-private partnerships
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Multi-stakeholder platforms working on pre-competitive topics like creating a better understanding on farmer profiles and farmer decision-making models, national farmer registration and exchanging experiences between supply chain partners, government organizations and financial institutions
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Reflections on R&R workshop East 2016 Forum Reflections onAfrica the IDH -Innovation
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Next steps
There is momentum to build on emerging public-private partnerships. With the building blocks that are already in place in Tanzania and with the appetite of a number of players to take next steps, IDH and DEG are interested to explore pathways with public and private partners to turn the national platform that already exists into something with more strength and broader reach. IDH and DEG are in the design phase of a new R&R Public-Private Partnership Initiative which would consist of the following four pillars:
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1 | Harmonized financial management curriculum for capacity building for farmers and farmer groups to become bankable. Existing platform collaboration like the roll-out of the “National Sustainability Curriculum” (NSC) and the National Coffee Steering Committee will be leveraged for this aligned financial and agronomical capacity building of farmers and farmer groups. 2 | Acceleration of the multiplication and distribution of improved planting materials. Jointly with TaCRI, the Ministry of Agriculture, Livestock and Fisheries (MALF) and key private-sector players, the platform would work to identify new roles and locally adapted ways to accelerate the multiplication and distribution of improved planting material.
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3 | Establishment of a “Coffee Challenge Fund” to work with banks and MFIs that are interested in setting up new innovative financial products for coffee renovation and rehabilitation (R&R) and to work with capacity builders that are interested to train farmer groups and farmers to become ready to invest in R&R.
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4 | Develop risk-sharing mechanisms to support the provision of financial services to farmer groups and farmers for investment in R&R by financial institutions and supply chain partners. Such risk-sharing mechanisms can be set up bilaterally in the beginning with Development Financial Institutions (DFIs), IDH, local financial institutions and supply chain partners.
Existing platform collaboration like the roll-out of the “National Sustainability Curriculum” (NSC) and the National Coffee Steering Committee will be leveraged for this aligned financial and agronomic capacity building of farmers and farmer groups. The objective of this new program is to reach 30,000 farmers and 300 farmer groups with access to medium to long term finance and high quality seedlings to replant or rehabilitate their coffee farms. IDH, DEG and its public and private partners welcome other parties that are interested in R&R through public-private partnerships to join us on this exciting journey. Together we can design an initiative by building on the existing foundations to bring plans into action!
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Contact Iris van der Velden, Manager Innovation Finance vandervelden@idhsustainabletrade.com Stay informed on this topic by signing up for our newsletter
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