Agribusiness, Processing and Rural Distribution Systemic Change Pathways
Septmeber 2015 MDF Timor-Leste Version-1
Summary MDF Timor-Leste Country Strategy Poverty Of the approximately 185,000 households in Timor-Leste, nearly half are considered poor.1 In TimorLeste, poverty is: An overwhelmingly rural and agricultural phenomenon. Majority rural households are either poor or vulnerable to poverty. Commercial agriculture and multiple ways to earn incomes for households are key to achieving resilience and moving out of poverty. The primary cause for malnutrition amongst children under five, and young mothers. Over 58% of children under five are categorized as stunted, with a quarter of young mothers malnourished. Households need to be able to eat more and eat better. A function of large-scale unemployment. There are few jobs in rural or urban areas to absorb the large number of young Timorese joining the workforce annually. Fueled by poor connectivity between different parts of the country. Difficult terrain and poor infrastructure keep producers and markets isolated from each other and entrenches poverty in particular locations.
Economy Growth thus achieved is unsustainable over the long term. New avenues need to be explored and nurtured for a sustainable economic future of the country. The major impediments to growth are: An over reliance on large capital investments by the public sector as a key driver of economic growth. The economy needs diversification to instil resilience. A small and inexperienced private sector that struggles to grow and manage business models outside of government contracts. Insignificant levels of private sector investment in areas of value addition and processing A disconnect between rural production and urban demand. High unemployment rates compounded by a large annual influx of young Timorese entering the workforce.
MDF Focus in Timor-Leste Encouraging investments in diversified businesses outside of oil and gas sector Stimulating establishment of alternate sources of incomes within and outside of agriculture
1 WB Poverty Head Count (49.9%) considering USD 1.25 a day as the poverty line (2007 updated).
Increasing investments in ventures focusing on adding value to local raw materials through greater processing Improving connectivity between producers and consumers and markets (both domestic and exports) MDF considers Agribusiness, Processing and Rural Distribution sector and Greenfield Industries such as Tourism and Manufacturing as the most effective vehicles for achieving this focus in Timor-Leste.
Women’s Economic Empowerment (WEE) All sectors are relevant for WEE, integrated in the systemic change pathways (see below).
Alignment with Government of Timor-Leste The Coordinating Ministry for Economic Affairs (MECAE) is particularly interested in improving the operating environment, thus making it easier for Timorese businesses to flourish. The focus of the ministry are the agriculture, tourism and manufacturing sectors as well as topics such SME financing in these sectors. MDF is engaged in conversation with the ministry on all these topics.
Note on Systemic Change Areas Currently the Agribusiness, Processing, and Rural Distribution and Greenfield industries sectors in Timor-Leste have products, services, and actors, but very little structure within which these factors can interact. This constrains the growth around any particular product (agricultural and nonagricultural), service, and activities such as processing, value addition, trading, and manufacturing. Given the amorphous nature of the sectors, MDF’s strategy, and consequent definition of systemic change areas, within these sectors are also broad. But engagement in these broad strategic and systemic change areas are critical first steps towards creating a well-defined, efficient, and effective market system in these sectors (for example, defining specific sub-sectors within the broader Agriculture sector in Timor-Leste). The systemic change areas that has been described in the later sections of this paper are pre-conditional to bringing about more focused changes in the sector. After MDF has laid the foundation for more “formed” market systems, it will seek to redefine and focus the sectors and systemic change areas on which it should focus next. It is expected that achieving the broad systemic change pathways outlined in this document is a process that should take about 8 years from inception of the country programme, given the required levels of resources are in place from the start. However, the resource environment around implementing MDF in Timor-Leste has always been constrained, which has limited engagement of MDF Timor-Leste within each systemic change area to half the potential. This has pushed the timeline for achieving systemic change from 8 years as previously expected to 10 years (thus pushing back the change horizon to 2023) – provided resources are adjusted to the required levels going forward.
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The MDF Framework for Defining and Populating Pathways to Systemic Change The systemic change pathway explained Competitiveness and change in sectors do not depend only on the actions of MDF. Sectors are complex and are influenced by a wide variety of factors such as global markets, changes in the policy and regulatory environment, the availability and quality of infrastructure, the cultural context and the environment. Some changes introduced by MDF will catch on quickly; others have faced barriers and moved slowly or not at all. MDF must be able to define which change areas it needs to focus on to make growth more robust and inclusive and then monitor progress towards achieving the quality of change that can be called ‘systemic’. For this purpose MDF developed its Systemic Change Framework as outlined in the figure below. This framework is applied separately to each key strategic change that MDF aims to foster within a sector or market system. The annexes to this Strategic Guidance Note provide a detailed example of how the framework is applied in Fiji.
MDF
Systemic
Change
Pathway
Application of MDF’s Systemic Change Framework requires a deep understanding of a sector as well as experience working with market players to address constraints to pro-poor growth. The first step in applying the Framework is to develop an inclusive, pro-poor growth strategy for each sector. This sector strategy is typically based in on an Inclusive Analysis of Growth, Poverty and Gender at the sector level combined with a Household Level Analysis of Poverty and Gender Dynamics and defines a vision for inclusive growth as well key constraint areas to inclusive growth. MDF will then proceed to launch partnerships aimed at reducing the constraints identified and unlocking inclusive growth. At the same time, MDF uses the framework outlined above to further define its ‘strategic intent’ for a sector, as accurately as possible given that it will learn more from implementation about what is really needed and realistically feasible. Please refer to MDF’s Strategic Guidance Note on Systemic Change which shows how an inclusive sector growth strategy (for the Horticulture sector in Fiji) feeds into the country strategy, and how systemic change areas support the inclusive sector growth strategy. As mentioned, for each systemic change area, MDF applies the systemic change framework; the introductory section justifies the rationale for identifying the systemic change. Importantly, in time, based on the experience gained from implementing the first partnerships within a sector, it becomes clearer which systemic changes the programme should focus on. As the programme discovers more through implementing its partnerships within the sectors, it becomes clear that some constraint areas appear to be dimensions of, or seem to coalesce around more deepseated problems. MDF then develops a better idea of which changes the market is ready for, and which changes requires more innovative approaches address the problems. Through the interplay between traction gained through partnerships and strategic intent, emerges firmer systemic change areas, which then become the ‘compass’ for programme implementation in the sector. This typically happens around two years into implementation as the first batch of partnerships start to yield results. To help define (and manage, monitor and communicate) the dimensions of change that deserve to be labelled ‘systemic’, MDF asks two fundamental questions: 1) are there appropriate incentives for market players to interact with poor people and to continue, expand and adapt the new business model; and 2) is the adoption and adaptation of the new business model continuing to serve the interests of poor men and women? For each question it has defined three key parameters. The table below reiterates these questions and briefly defines the parameters related to this. It should be noted that the first three parameters refer to the strength of the business case underpinning the change, and other three parameters refer to the beneficiaries of the change. Together they define the quality of change as well as the scale of change, making it truly ‘systemic’.
Parameters with Systemic Change Framework Questions
Parameters
Definitions
Are there appropriate incentives for the market players that interact with poor people to continue, expand and adapt the new business model?
Autonomy
Independent action by businesses or other market players to adopt and/or improve a business model promoted by the programme.
Sustainability
The extent to which the business model promoted by the programme is sustainable and/or profitable.
Resilience
The extent to which the market system supporting the business model can adapt to stay competitive, take advantage of new opportunities and recover from adverse shocks.
Inclusiveness
The extent and depth to which the business model as practiced by market players includes and benefits the target group
Scale
The proportion of the potential target group that gets the goods, services and/or jobs promoted by the programme.
Women’s Economic Empowerment
The extent to which the business model includes and benefits women with respect to income, access to opportunities, access to assets, life chances, jobs, manageable workloads and decision making power.
Is the adoption and adaptation of the new business model continuing to serve the interests of poor people?
Then, by asking these two questions using these six parameters, the framework seeks the programme to define a ‘beginning state’ for each parameter. This is the state of the sector or market system at the start of the implementation process (‘at the beginning of the pathway to systemic change’). Once the programme is being implemented it defines the key market or regulatory gaps it seeks to address to make the market system work better.
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This is followed by a description of the ‘end state’ for the same parameter. It outlines how the programme wants to see the market system work. If this state is achieved, the work is done. The end state should be defined as per market needs to work well. Therefore it may occur that the programme defines an end state that it cannot achieve given its current resources and implementation window (contract duration). This makes the Systemic Change Framework a management tool not only for the programme, but also for its investors. It starts to define the ‘total potential’, the ‘total need’ and the ‘total time and resourcing’ required to meet those needs. As mentioned, the space between the beginning state and end state is the gap in the market system that needs to be filled, the pathway to systemic change that needs to be populated. MDF identifies four stages of progression along this pathway, captured for each parameter. These stages are ‘initial’, intermediate, ‘advanced’ and ‘matured’. In time, MDF will make progress against these parameters, but not at an equal pace (there may be very inclusive partnerships that lack scale and to some extent resilience, and partnerships that are strong on autonomy and scale, but less on WEE). Each partnership design needs to be strong and sustainable enough to be considered for co-investment by MDF, but no partnership is perfect. By managing its portfolio MDF will ensure quality of change at scale in a systemic manner. Nevertheless, MDF does not expect that all changes will reach the same level of institutionalisation in the market system within the life of the programme. Some changes may only reach an initial or intermediate level of systemic change, while others may reach an advanced or matured level of change. Using the knowledge and understanding gained from several years of experience, MDF can project the level of systemic change it expects to catalyse two years beyond the life of the programme.2 MDF assesses the progress of systemic change against these projections and analyses why change is happening faster or slower than expected. This helps the programme to better understand market dynamics and adjust its strategies appropriately. Finally, for each parameter, MDF will describe the beginning state and end state of where it is situated in moving forward along the pathway to achieve systemic change. This helps the reader understand how far MDF has progressed in terms of achieving its strategy objective, with whom (which partners), and why. As implementation and insight progresses, MDF periodically updates these stories (as well as, if needed, the desired ‘end state’).
2
The processes of change that MDF catalyses during the programme will continue beyond the end of the programme. MDF uses the DCED recommended two years post programme timescale for its projections.
Agribusiness, Processing, and Rural Distribution Scale, constraints and opportunities 63% of all households in Timor-Leste are involved in agriculture. Subsistence-oriented farming is the most prevalent practice. Agriculture contributes 30% of the non-oil Gross Domestic Product (GDP) and employs up to 51% of the workforce. 31% of this workforce is comprised of women. As an area of MDF’s engagement, Agribusiness, Processing and Rural Distribution targets filling the gaps in the movement of goods and services between Dili and the other municipalities. Broadly defined, work in the sector relates to: enterprises interested in establishing trade functions such as distribution, storage, transportation and testing; enterprises investing in setting up trading relationships with farmers across a number of crops (through contract farming or more frequent farm gate purchases); and enterprises investing in processing and adding value to local agricultural raw materials. Constraints and opportunities in the sector are as follows: Businesses struggle to bridge the gap between farmers and markets. There is growing demand in urban markets across the country, for both fresh and processed food products. However, despite high demand, local products are the minority in shop shelves in Timor-Leste. Lack of support functions like distribution, testing, storage and transportation make it difficult for businesses to buy from local sources and sell to different markets around the country. The absence of support functions also make local sourcing risky, especially when considering processing into consumer foods. Thus, agribusiness enterprises favour the relatively easier imports. There is virtually no investment in large scale food processing. The agricultural input business in Timor-Leste is nascent; there are very few certified distributors of inputs in the country and all of them are based in Dili. Outside of Dili, users are able to purchase a small variety of inputs from local stores (kiosks), which are mostly vendors of household items. The average farmer lacks the knowledge to make better use of available resources in order to maximize productivity and/ or reduce risk. This lack of knowledge extends to information on cultivation practices as well as appropriate usage of inputs (e.g., seed varieties). Across the country, apart from a few hundred semi-commercial vegetable, farmers most others are operating farms at subsistence levels. The overall operating environment for agribusinesses is difficult. The government and donors are the biggest competitors to the private sector both in terms of buying (e.g. government buy back
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programme competes against private businesses when purchasing local products) and selling (e.g. government and donor programmes distribute large quantities of free inputs in an uncoordinated fashion). The general sentiment in the sector is that it is a risky area for investment due to high chances of government and donor interference.
The position of the poor in the sector The poor in the sector are households who are engaged in smallholder agriculture or as labour in other farms. Most agricultural households are either living below the poverty line or chronically vulnerable to poverty. Majority farmers practice a low- or no-input agriculture, which yields low levels of produce and at best lends itself to a semi-self-sufficient farm. A lack of access to markets further aggravates the condition by limiting investments in farms and trapping smallholder farmers in a cycle of poverty. Agriculture is also the largest employer in the economy with 51% of the workforce (of which 31% are women) working on farms. However, most of these employment opportunities can be considered vulnerable. A bad growing season could not only push a farming household into poverty, but also deeply impact any opportunity for individuals to work on other farms.
The position of women in the sector Timorese women are very active in the agricultural sector with approximately 88% of women contributing to the sector, spanning production, trading, selling agricultural products to the market and managing kiosks. When there is increased income from agricultural activities, the whole household benefits. Contributions to such gains are made by both men and women; women work in the fields alongside men – often weeding, watering and harvesting – and men support women’s activities through such tasks as preparing land for vegetable production and taking livestock to market for sales. In cash crops such as rice and coffee, women contribute but men are typically responsible overall including sales of the crop. In all cases, money earned from crops is pooled and decisions about expenditures are made jointly. Women’s economic advancement is therefore tied to the advancement of the household economy, as is men’s. However, there are constraints to women making a greater economic contribution when it comes to access to resources and opportunities, and women’s workload.
Systemic changes in Agribusiness, Processing, and Rural Distribution A more sophisticated Agribusiness sector would mean more transactions between actors trading in fresh and processed foods, more movement of goods (and services) between points across the country, and a larger proportion of local agricultural raw materials in markets across the country. Given the current status of the sector, the first steps towards this vision would involve facilitating a
more effective and efficient movement of agricultural products (inputs and harvests) between farms and markets. In conjunction, there need to be in place businesses that will use raw materials, add value to them, and sell them to Timorese consumers. These two steps will lay the foundation for greater, and sustained, development of the sector. Based on this analysis, MDF has identified two systemic change areas in Agribusiness, Processing and Rural Distribution: Input companies, traders, and business member organisations invest in increasing their coverage of products (inputs and farm outputs) and services to meet domestic market demand. Agribusiness companies invest in new/ existing business models to process and add value to local raw materials for sale in the local and export markets. As planned partnerships are implemented and this first iteration of systemic change establishes itself, we need to refine the space further and build on these first few steps. Post 2023, MDF could be looking at, but not be limited to, new systemic change areas involving: Processing: graduating from primary processing to the processing of sophisticated consumer foods or even ingredients for further processing, all using local raw materials. Creating agro-economic zones across the country, with the help of the private and public sector. This could come complete with customized incentive packages for private sector enterprises, or farmers, specific to the crops in particular agro-economic zones. Working with key public and private sector agencies in developing mechanisms for improving irrigation in the country and extending growing seasons. This could be through purely private sector initiatives, public sector reform, or a form of public private partnership (PPP). Working with stakeholders in agribusiness to tackle critical infrastructural issues such as large (and certified) bonded warehouses for facilitating exports, creation of agriculture specific financial products and services, promotion of women farmer specific financial products and services etc. Please note that, although we have provided some examples of how our first steps to achieving systemic change in the Agribusiness, Processing and Rural Distribution sector can be refined in 10 years time, these spaces are likely to change over time. The key reasons being the compounding impact of a maturing sector on the players involved in it as well as the unpredictable nature of government reforms. MDF will continue to revisit its current systemic change areas, as well as the areas identified in the future in light of significant changes that take place in the sector.
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Pathway 1: Input companies, traders, and business member organisations invest in increasing their coverage of products (inputs and harvest) and service to meet domestic demand. Background (‘before picture’) Trading is confined to producer-retailers at suco markets and small and medium traders in municipalities near Dili. Of all types of crops, only vegetables have seen some level of specialisation. Currently 3 to 5 specialised traders exist who deal exclusively with vegetables, chiefly from Aileu and Ainaro.3 These traders have their own farmer networks, and equipment such as cold storage, and refrigerated trucks. There are no businesses involved in key support services such as transportation, storage, and food safety testing. As a consequence majority agricultural production in Timor are stuck at farms and movement of products from production centres to markets are low. Marketing agricultural inputs is very new in the country. In most of the country inputs are sold on an ad-hoc basis by small shops whose core business is selling household goods. At the national level, there are only 5 dedicated input shops; but all are based in Dili. Of them, only one has invested in establishing a distribution channel for his agricultural input products to reach farmers.4 Farmers have a poor understanding of modern cultivation practices, proper input usage, or commercial agriculture. A combination of poor access to markets, poor access to inputs, and little knowledge about modern (and commercial agriculture) ensures that farming remain a low input and low output enterprise. Lastly, the ministry of agriculture has been a major player in the sector for a number of years: as a ‘buyer’ of harvests (but occasionally and at artificially high prices) and as a ‘giver’ of agricultural products. Such actions by the government cause significant distortions in the market and limits investments by the private sector in agriculture. The picture is the same for agricultural products as well as livestock and poultry.
3 Most of these enterprises have received extensive, and over a long period of time, support from donor programmes on their way to set up. 4 Loja Agi Agricultura, an MDF partner.
Anticipated ‘end picture’ (when markets work well) Specialist large traders establish themselves across key crops (such as legumes, grains, fruits, and vegetables) and livestock/ poultry sourced from the main growth corridors in Timor-Leste.5 These traders invest in crop (and animal) specific farmer networks; improve understanding of cropping patterns; improved storage; sorting and grading; and transport. In each municipality, there are also a number of small traders buying regularly from the rotating weekly markets in different administrative posts, and selling directly to end markets or larger traders. There are a few businesses offering commercial storage solutions, improved packaging, specialised agricultural transport, and food safety testing. To cater to a growing demand for quality inputs, there are at least 4 national level distributors of agricultural inputs (spanning seeds, animal feed, crop protection products, fertilisers, and agricultural equipment) who work with retailer networks over all municipalities and most administrative posts in the growth corridors. Lastly, at least two apex industry bodies (one for traders and processors and one for input sellers) organise themselves to conduct specific, and evidence based dialogue with relevant ministries (MECAE and MCIE) in order to make it easier for agribusinesses to establish and operate. More trade influences a change in the proportions of commercial, semi-commercial, and subsistence farmers in Timor. More semi-commercial farmers will become fully commercial, and more subsistence-oriented farmers will graduate to becoming semi-commercial. Over a period of 8 years, up to a quarter of all farming households in the growth corridors will buy inputs and sell their farm produce regularly to a number of buyers. Amongst these farmers, women are recognised by service providers as integral functionaries in agriculture and are targeted for sales of inputs as well as for providing information on cultivation practices, post-harvest techniques and other relevant information.
Expected Pathway to Systemic Change (likely number, types and focus of partnerships) To achieve a critical mass of partnerships whereby systemic change becomes viable, MDF plans to engage with a number of partners at various levels, and functions, in the sector.6
5 Most semi-commercial and commercial agricultural activities are concentrated along three corridors: Dili- Ainaro; Dili- Baucau; and DiliBobonaro. These are considered the main growth areas in agriculture due to the variety of production, relative ease of connections, and the high concentration of farming households. 6 For more details on current status of portfolio contributing to this change area, please refer to Systemic Change Framework for Agribusiness, Processing, and Rural Distribution.
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Partnering with 10 businesses in purchasing and reselling different agricultural products (such as legumes, grains, fruits, and vegetables) and livestock (poultry and pigs) to national and subnational markets. Supporting 3 national level distributors of agricultural and livestock inputs in establishing distribution networks covering all 3 growth corridors (down to the level of administrative posts). Working with 4 partners in establishing businesses around transportation, certification/ testing/ packing of produce, and commercial storage options. Engaging 1 dedicated information provider (either a telecommunication partner, or a media house) who will talk about agriculture as a commercial venture and see farmers as target clients for information. Assist 2 business member organisations in conducting evidence based and viable dialogues on removing barriers to agricultural trade with relevant ministries.7
Women’s Economic Empowerment In all the partnerships mentioned above, women will feature either as customers of agricultural inputs or sellers of agricultural produce. Thus, no special partnership agreement to deepen WEE is needed. From the partnerships needed to achieve systemic change, women will be expected to benefit through: Increased income through the sale of their own crops (where women play a relatively dominant role such as vegetables and spices) or through the increase in income at the household level from the sale of crops where women play a supporting role. Improved decision-making by the female members on household finances (particularly pertaining to health, education, and daily needs). Access to market for produce and improved agricultural skills by women is expected to improve their influence on agricultural decisions as well. Reduced workload through greater ease of sales or access to inputs that make farming more efficient. Access to inputs (including information) and a regular market for sale of their produce.
7 Dialogues would include, but not be limited to, role of government in promoting agricultural input usage in the country and rollback of government purchase programmes to allow for greater participation by private sector buyers.
Results in time By 2023 (counting from 2013 when MDF Timor-Leste started implementing) MDF Timor-Leste can reach 8,000 to 9,000 farming households and create 250 to 300 Full Time Equivalent (FTE) jobs while working in this systemic change area focusing on trade of agricultural inputs and products. Of these beneficiaries, at least half will be women.8 This number of beneficiaries of MDF partnerships is expected to reach a critical mass in the sector, which will influence up to a quarter of farming households in the growth corridors to buy inputs and sell their produce to different buyers regularly. The beneficiaries will include mostly semi-commercial farmers or subsistence farmers who have graduated to semi-commercial farming due to improved access to markets and increased availability of inputs. Outside of agricultural labour, FTE jobs are likely to be created in the businesses of MDF partners in positions that help with purchasing and reselling products and inputs, as well as within support services (e.g. laboratory support staff, drivers, field officers, buying agents etc.).
Feasibility, efficiency and risks Since start of implementation, MDF Timor-Leste has seen a steady increase in the level of interest by the private sector in wanting to invest in agricultural ventures. However, there are few public sector agencies, private sector businesses (including banks), and development programmes who are in a position to encourage and nurture this interest. Thus, considering the investment climate in the sector, as well as experience in working with small to medium agribusinesses, MDF is best placed to stimulate this systemic change. Furthermore, greater coordination with other existing development programs and deep inter-connections planned with an upcoming rural development programme, would make MDF more efficient in achieving these changes. The pathways to achieving the change in the way products and inputs are traded in Timor-Leste are further optimised by the complementarities that exist between this area and the second systemic change area in agribusiness: stimulating greater value addition and processing. Thus, one change area acts as a pull for a variety of agricultural products, while the other change area focuses on improving the supply chain and connecting markets. Risks do exist on the way to achieving this change. They are: Intermittent activities of the public sector and development programmes to continue acting as a buyer and/or provider of agricultural products and services. Through specific partnerships, MDF will seek to establish a line of communication between businesses, the government and other development agencies on the implications of interference in markets.
8 Women will benefit from direct sales of crops as well as through an overall increase in household income.
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Threat to agriculture from climate change and adverse weather conditions. Through its partners, MDF will continue to share information on possible risks to improve preparedness and promote coping strategies, with commercial benefits, such as varied cropping patterns, use of agricultural equipment such as plastic tunnels and others in order to instil resilience in local farming practices. No change in the conditions of critical infrastructure such as roads. Through dialogues between public and private sector players, infrastructure conditions can be improved. However, given other considerations, MDF will have limited impact on this. A continuation of infrastructure degradation would limit the impact that MDF can have on farmers, as well as stunt the progression of systemic change.
Pathway 2: Agribusiness companies invest in new/existing business models to process and add value to local raw materials for sale in the local and export markets. Background (‘before picture’) The agro-processing industry in Timor-Leste is limited mostly to small scale processing by informal businesses converting products such as soybeans to tofu and tempeh or cassava and bananas into chips, for the domestic market. There are very few examples of commercial processing: 5 large-scale processors are involved in coffee; and 1 processor of maize and soybeans to fortified baby food in the country. Apart from these actors, there are no other commercial processors of agricultural products. Absence of a favourable business environment where irregular and ad-hoc interference by the government create barriers to entry, coupled with missing support services such as trade logistics, financial products, and specialised infrastructure (e.g. testing facilities) make value addition of local raw materials less competitive relative to imports. The situation is further compounded by unavailability of information on raw material sources and suppliers. Overall, there is a huge negative trade balance when it comes to food products: the bulk of processed commercial foods that are available in Timorese markets are coming from outside the country.
Anticipated ‘end picture’ (when markets work well) Capitalising on existing and growing demand, businesses in Timor-Leste invest in processing of local raw materials into commercial food products. At least 20 to 25 businesses invest capital in setting up processing facilities and offering a wide range of primary processed products (such as milled rice, shelled corn, beans, and fresh packaged fruits) or secondary processed products (like tomato ketchup, biscuits from corn flour, chips from potato, cassava and bananas, canned fruits, coconut oil, grounded spices, etc.) to the local market. The processors will take advantage of preference for local tastes and better quality. Of these processors, at least 2 businesses will be able to meet the necessary requirements for export inspection and phyto-sanitary certification in collaboration with the National Directorate for Quarantine and Biosecurity in Timor-Leste. There are also significant investments by processors in organising their supply chains, starting from spot-purchase and contract farming to vertically integrated farming in three growth corridors.9 This would allow up to a quarter of commercial and semi-commercial farmers from these areas to get access to a regular
9 The three growth corridors are: Dili-Ainaro, Dili-Baucau and Dili- Bobonaro.
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market. Apart from benefiting from regular sales to processors, poor women and men will also be benefited through getting job opportunities either at the processing facilities themselves or as farm labourers in case of vertically integrated processing operations. Financial institutions see the viability and profitability of the business model for local agro-processors and tailor financial products to meet their needs. Lastly, the public sector acknowledges the growing local processing industry and provides investment support and ensures favourable business conditions for local processing enterprises to operate.
Expected Pathway to Systemic Change (likely number, types and focus of partnerships) MDF plans to work with at least 12 agro-processors engaged in primary or secondary processing of agricultural raw materials, poultry, and livestock. Primary processing will include: milling of rice and maize; processing of beans (soybeans, red beans, and mungbeans); cleaning, sorting, grading and packaging of fresh fruits and vegetables; and processing of poultry, and livestock products. Secondary processing could include: processing fresh fruits and vegetables into chips, ketchups, pickles, jams and juices; using corn and cassava flour to make biscuits and noodles; processing spices and coconuts into ground spices and oils; and processing and canning/ preserving a variety of food products.10 MDF will support these enterprises on aspects such as: conducting feasibility studies; establishing and/or optimising backward linkages; direct investments in infrastructure; training of staff on technical aspects of production and sourcing; adherence to food safety standards etc. MDF will address issues around access to finance (credit, business plan development, documentation etc.) for processing enterprises by working with at least 1 bank. Lastly, MDF will work with 2 public sector agencies including Coordinating Ministry of Economic Affairs, Agriculture and Fisheries (MECAE) and National Directorate for Quarantine and Biosecurity on promoting incentives for investments in agroprocessing and developing standardization steps to assist with exports respectively.
Women’s Economic Empowerment As with pathway 1, economic empowerment of women are integrated with processing of agricultural raw materials. Female members in the household benefit from access to opportunities to gain new skills or improve existing skills on input usage, production and post-harvest through training programs or extension services by the agro-processors. They will also have the opportunity to earn
10 The choices of products are based on trends seen in imports of these products, as well as viability of processing in country with respect to supply of raw materials.
more either through the sale of their own crops (where women play a relatively dominant role such as spice) or through the increase in income at the household level from the sale of crops, poultry or livestock where women play a supporting role. In addition, with greater investments in agribusiness and processing, more employment opportunities will be created for women in different roles at the processing factories. Thus, no specific, and separate partnership agreement on women’s economic empowerment is necessary while progressing with this systemic change.
Results in time Over a 10-year period (starting from 2013) around 4,000 to 5,000 beneficiaries will be able to earn additional incomes by selling more volumes and variety to agro-processors, out of which at least half of the beneficiaries will be female. Unlike in pathway 1, the beneficiaries could come from areas outside of the growth corridors, depending on the products. For example, processing of coconut oil would involve farmers from remote locations such as Lautem or Cova Lima. Lastly, further benefits would accrue through the creation of approximately 400-500 FTE jobs. These jobs will be at processing factories and on fields as farm labourers.
Feasibility, efficiency and risks Since start of implementation, MDF Timor-Leste has seen an active interest from a number of businesses wishing to diversify investments into processing. Processing is a new direction in TimorLeste agriculture, and there were questions around whether it would be feasible or not. However, domestic markets have shown a demand for locally processed foods such as milled rice, chips, jams and sauces. To complement that, businesses that MDF has spoken to, or information MDF has received from government and financial institutions, suggest that investments in processing are being considered. Just like pathway 1, MDF is one of the very few business development and advisory entities positioned to support such an interest. On top of that, MDF’s other systemic change area which focuses on improving distribution of products, and collection of raw materials complement food processing ventures effectively. Agro-processing enterprises do require large investments and long-term payback periods in order to be financially viable. In a small country like Timor-Leste, sound feasibility analysis needs to be done before the investment has been made by the entrepreneurs to reduce risk of failure. MDF would work closely with the new entrepreneurs to develop feasibility plans of proposed businesses in order make the plans more concrete and realistic. MDF will also work with the financial institutions to facilitate favourable loan products for potential entrepreneurs who want to setup new agroprocessing facilities or want to expand/improve existing facilities.
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