Conference of Financial Institutions: "Financing Agriculture and Agribusiness in Tanzania: Opportunities and challenges“ 24-25 November 2014. Arusha, Tanzania FAO: Emerging agricultural value chain and value chain finance approaches for inclusive development

Prepared: Calvin Miller, Emilio Hernandez FAO-AGS Presented: Diana Tempelman, FAO Representative Tanzania

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The challenge:

POPULATION TREND

Global population 9 billion in 2050

• •

70% extreme poverty in rural areas 14% global population aged 15-24 yrs Economically stagnant rural areas



livelihood opportunity rural youth

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Many faces of rural poverty

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

Climate change

CLIMATE CHANGE in 2013

– – Global carbon emissions increased by 2.3% 22 million people displaced by natural disasters, 97% in developing countries

EFFECTS ON FOOD AND FINANCE – need to:

↑ investment in insurance (esp. developing countries ) ↑ investment in low-carbon agriculture ↑ finance and investment into irrigation, flood control and new farming systems

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

Forces driving agricultural innovation are changing

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MARKET OPPORTUNITIES

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BIOTECHNOLOGICAL ADVANCES

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KNOWLEDGE 5

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Sustainable agricultural value chain?

An

agricultural value chain :

all stakeholders in a coordinated production and value addition needed to make food products.

A SUSTAINABLE agricultural value chain

: • • • economic sustainability social sustainability and is fair* environmental sustainability

Fairness

in a value chain: farmers get market rate prices.

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

Stakeholders role in agricultural VCs

Operating Environment Input Suppliers Growers Transport Storage Services Production Logistics & VC Services Food Processing Industrie s Food Retail Industries Agri-food Industries Business Support Services 7



Agricultural value chain finance?

Agricultural value chain finance (AgVCF)

– financial products and services flowing

to

and/or

through

the value chain to address the needs of those involved.

Principal objectives:

 Align and structure financial products to fit the chain  Reduce costs and risks of finance

Agri-finance value chain approach?

– All chain actors, processes and markets – Transaction focus – Risk mitigation – Direct and indirect financing

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

Using the value chain: a transaction and cash flow financing model

1. ORDER GOODS 3.

SHIP GOODS Small farmers & agribusinesses 9

Building blocks for financial inclusion and growth

Technical

Increase financing to agriculture at all levels of the chain

intermediation capacity development Governmental enabling environment

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Business models for Ag Value Chain Financing approach

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1 - PRODUCER-DRIVEN business models

ASOPROF Apex farmer organization model - BOLIVIA

National Buyers International Buyers ASOPROF Bean Association

ASOPROF Services

• Seed production • Technical assistance • Processing • Marketing/export • Member profit share • Financing linkages (not direct financing) : Producer Organizations Farmer Coops Farmer Coops Producer Organizations Farmer Coops Individual growers

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2 - Lead firm business contract – Micro-Finance Institutions

ICAM Chocolatier Italy relation with cocoa farmers - GHANA

Cocoa exports Icam Chocolate Uganda Ltd Icam SPA, Italy Loan channeling Local microfinance organizations

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3 - Facilitated business models – VALUE CHAIN DEVELOPMENT WITH INVENTORY CREDIT FAO – RABOBANK/NMB Foundation - TANZANIA

RABO monitors warehouses registered with TWLB RABO uses existing relations with off-takers linking them with farmer groups and monitor market requirements FAO supports interventions to improve productivity. RABO offers guidelines on market needs

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FAO brokers dialogue between groups and local buyer and supports organizational capacities.

RABO supports loan management

MODEL HIGHLIGHTS & REVIEW Warehouse Receipt System 15

1 – Tanzania highlights

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1 – Tanzania –continued

_ Trade by the Tarakea Rural Cooperative Society under WRS

Year Volume of coffee traded (tonnes)

2002/03 120,865

Coffee value received by farmers (US$ equivalent)

50,000 2003/04 151,707 2004/05 144,362 68,268 60,315 2005/06 163,152 2006/07 224,874 179,467 263,103

Net gains captured by farmers (US$/ton)

0.413

0.449

0.417

1.099

1.170

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2 – Niger highlights

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2 – Niger -continued-

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Review of the experience Efficiency gains WRS - Tanzania Warrantage – Niger

↑external finance to bulkers / traders ↑external finance for rural HHs’ non to buy from smallholders farm rural activities ↑Production and trade: coffee, tobacco, cotton, cashew, & sunflower ↔ smoother household cash flows ↑Price gains within national AVC, varying / crop ↑stability of grain supply for domestic and export markets

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Review of the experience - continued Limitations WRS – Tanzania Governance problems Negative impact Government trade policy interventions selected crops No assessment of loans to production processes.

Warrantage – Niger Productive capacity producers remains very volatile Limited repayment due to poor business environment for off farm enterprises No assessment loans to production processes.

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FAO and 3 Rome-based Agencies

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* Weak capacities and limited access to services for producers and SMAEs inhibit potential profitable investments * Investors seek technical support to strengthen the weakest linkages of the value chain FAO helps facilitate public and private investments by enabling value chain actors to be reliable partners for agribusinesses and investors

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Reduce capitalization requirements Facilitate credit access Complement financial intermediaries’ guarantees Promote participation of private agents Partial backing of intermediaries in loan collection

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Post investment support for increased impact Access to finance (MFIs and Banks) Investment funds $ Public investment Existing TAF Enabling environment Policy advice linked to public investment Pre-investment support for potential investee SMEs 25

Rome-based-agencies

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Principles of Responsible Investments in Agriculture

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Financial Inclusion and Agric Dev.

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Spatial development initiatives 26

* Rural Infrastructure and Agro-Industries Division (AGS) Website

www.fao.org/ag/ags

* Rural Finance Learning Centre:

www.ruralfinance.org

* Contract Farming Resource Center

www.fao.org/ag/ags/contract-farming/en/ 27