Securing Rural Livelihoods Through Inclusive Business Models IBMs Lessons

Securing Rural Livelihoods Through Inclusive Business Models(IBMs) Lessons from Uganda 26 th -27 th April 2013 Presented by: Connie Magomu Masaba Project Manager At the PAP/EALA Seminar in Kigali, Rwanda Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project – Phase II 1

Inclusive Business Models (IBMs) involve close working partnerships with smallholder farmers and communities, share value among the partners. Include smallholder farmers in mutually beneficial business relationships with clear enforceable agreements Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project-2 2

Recent developments in the agric sector Increasing interest in Agriculture by Private sector- FDI and local entrepreneurs Governments slowly increasing investment Some banks getting interested in lending to sector Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 3

Role of Smallholder farmers The approximately 500 million smallholders are main investors in agric. in developing countries. Smallholders support a third of the global population, produce up to 80 per cent of food in t developing world. Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 4

Smallholder needs for effective contribution secure land natural resource rights better access to inputs, technical expertise, agro-processing and other off-farm opportunities, Finance markets. Effective Partnerships /involvement in Agric. business Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 5

Inclusive Business Models- a Ray of Light Also referred to as responsible investments Recognize role of smallholder farmers as active partners in agribusiness Mutually beneficial and sustainable partnerships make good business sense Take into consideration social, environmental and economic soundness of investments Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 6

Characteristics/properties of effective IBMs Ownership Voice Risk Reward Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 7

Uganda - Oil Palm Development as an IBM PPP with smallholders as effective partners Funded by IFAD, GOU, Private sector partner (Bidco) and farmers Nucleus estate/Outgrower scheme model Import substitution effort- Palm oil most imported agricultural product in Uganda (USD 177 million in 2011) Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 8

Uganda- Oil Palm Devt. Oil Palm highly productive, - 4 tons of oil per Ha per year harvested monthly so giving farmers high and steady incomes over 25 years Project meets the needs of the smallholder farmers to effectively contribute to development Government has effective role in the partnership with farmers and private sector partner Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 9

Establishing the partnership Agreements in place with secured interests of all partners Transparent process of getting private sector partner- advertised the tender Sensitization and involvement of the communities from start of project Ownership, voice, risk and reward clearly exhibited in partnership Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 10

Ownership: Farmers own 10% of investment and Private sector own 90% Farmers own their own plantations (3, 500 ha) while Private sector owns 6, 500 ha of oil palms Over 1500 farmers participating as smallholders with about 600 women farmers Some farmers supported to acquire land for production Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 11

Voice With 10% shareholding, farmers have 2 positions on the board of the agribusiness Farmers represented on the Oil Palm pricing committee Farmers represented on the services cost panel Farmers organised in farmer organisation with leadership democratically elected right from grassroots (units, to blocks to district level) Hold an annual general meeting Farmers consulted on issues that affect them, before implementation Women take at least one third of the leadership positions Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 12

Risk Sharing Price fluctuation due to changes in international prices. Prices tagged to international price and determined thru a pricing formula- farmers aware. Farmers access loans for production that are recovered from their sales. Risk on non performance secured by group guarantee arrangements Private sector absorbs palm oil market risk- has to buy all farmer produce Government absorbs risks of failure performance due to natural causes Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project of oil palm 13

Risks cont’d Farmer lands not security for loan hence confident of their land- plantation is security in itself Ffb inspector stationed at the mill to ensure no unwarranted rejections of farmers produce Demand for palm oil still high in the region and currently met by imports Farmers get import parity price Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 14

Reward Increased incomes for farmers(USD 150 per acre per month for mature plantations Assured of a market for produce Pricing formula assures farmers of a good price for ffb Value addition (mill and refinery in place for processing) Access to technical know how, improved seedlings and inputs Improved road network (750 km of road network) Employment creation (2000 employed on nucleus estate, 500 in farmer gardens and over 1500 directly as farmers Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 15

Reward Cont’d Increased investment in agricultural sector through FDI (USD 120 million) New income generating activity hence less dependency on lake and forests Farmers have a say in decisions around price and services Farmers in some cases receive services from nucleus estateland clearing, planting, management Tax income for government form new industry- Refinery and mill Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 16

Impacts of Project Early results Improved land rights Increased incomes Creation of employment improved infrastructure facilities and services Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 17

Lessons Learnt effective partnership between rural smallholders and the private sector possible governments play a positive role choice of the business partners- must have a heart for the rural people inclusion of smallholders in all decisionmaking processes important building partnerships takes time Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 18

Role of Parliamentarians In IBMs Ensuring a conducive business environment for both the investors and the farmers Legal framework that supports IBMs/PPPs Monitoring of activities to ensure win situation for all the players in the business Facilitate confidence building among the partners Support efforts that bring investments into the Agricultural sector Support joint venture with Government as an active investor in the interim, then Government can divest its shares Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 19

Conclusion Business models that support local farmers are more promising and make good business sense Farmers have proved to be highly dynamic and responsive to market forces Success of IBMs depends on the level of ownership, voice, risk-sharing and benefitsharing between partners Requires sustained support by a range of service providers (government, civil society, private sector) Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 20

Finally, Rural people should be: part of the solution for global food security a priority for governments, the international development community and any other investors. Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project 21