Strengthening effects of Dutch investment. African agrifood value chains, enabling environment and youth
Participation: please follow the link on your invitation
Topic & target:
This Vijverbergsession will focus on Dutch private sector investments in African food value chains and how to assess and strengthen their positive effects on the local enabling environment, specifically employment, entrepreneurship and capacity development of young people in the agrifood sector.
Three different Dutch companies will give a short pitch on one of their investments in Africa in the agri-food sector. In the second part of the discussion, the experience and role of other partners of the Dutch Diamond and African stakeholders will be explored.
The objective of this meeting is to discuss the practical challenges and opportunities of investing in agribusiness in Africa, the role of the enabling environment in strengthening the positive effects of private sector on sustainable short and long term agricultural transformation with people from business, policy makers, researchers, NGOs and other stakeholders.
Short introduction by Fransesco Rampa, ECDPM
Most people in Africa live from farming and agricultural transformation is an important starting point for development processes. Attracting and increasing public and private investments in the food economy is high on the African agenda. Many development partners, like the Netherlands, see that combining efforts in development cooperation and trade and private investments in partner countries has the potential to multiply positive effects of both. What we know is that a lot of growth is taking place in Africa but it is unequal growth and not including the youth. Young people are running out of the rural areas. How to make agriculture sexy again, is an important element of rural futures in Africa. Dutch organisations and institutions all have a different role to play in strengthening the positive effects of Dutch investments in the African food economy
Guus van Westen – Current status of Agribusiness in Africa
I am involved in the research project “Follow the food” that focuses on the impact of investments in the agri-business in Ethiopia, Kenya and Ghana, especially on local food security. The assumption behind the research is that lot of decisions on investments are taken with an eye on national markets and the world market, but that the impact on local realities can be quite different. There are roughly three impact pathways: the impact on (1) on job creation, income, productivity; (2) competition for local natural resources – agriculture may compete with local subsistence farmers for land and water; (3) local food markets, the availability of local food that may be affected by investments. We are still collecting data, so I do not have statistical results yet, but I do have some impressions.
The overriding impression is that Dutch investors are rather reliable players: they have grown up in an environment where fair play is encouraged and practiced, and they bring these norms to the field. There are some fields, however, where there are tensions. There are mismatches between the expectations and the mindset of Dutch investors and those of local communities. A Dutch business enters an agreement for his business with the government for, say, land use. Then later on problems arise with the local community who feel thrown off their ancestral land. The investor sees the government as responsible for that side of the contract, but this contractual logic is not necessarily the logic of the local people. If the local people do not like your project, they have means to let you know. An investor must address these wider responsibilities beyond the immediate legal consequences.
Workers are expected to be recruited from the local community where the investments are carried out. But actually migrants often take the jobs. That contradicts the local expectations. As a consequence wages are often lower than the living wage level since local workers, often young women, are usually part of a household that covers some of their needs, for instance housing.
Prices for local food often go up as a result of foreign investments. Market failure and logistic problems lead to this illogical result.
Don’t focus only on your own project, take a systems approach, and look at the context. Investment proposals may be sound in their own terms, yet end up promoting inequality when access to resources (for instance, local irrigation-schemes) is biased in favour of an elite group of the local farmers. A key requirement for success is keeping communication channels with local communities open, not just in the decision making phase.
Pitch by Maaike Groot, East-West Seed International
East-West Seed is a tropical vegetable seed company with Dutch roots. It has its headquarters in Bangkok. Founded by my father, 35 years ago, it is now big multinational, selling seeds to 18million smallholders in different countries in Asia, Africa, and Latin America. We develop seeds with a built-in resistance to tropical diseases, draught, etc. We combine this with training the farmers in growing vegetables, so they can get a decent income with enough yields.
In Africa we have a subsidiary in Tanzania with 600 employees and 100 farmers who grow seeds for us. Tanzania is an expensive, bureaucratic country where it is hard to find skilled farmers who can adapt to change and want to try newer and better techniques.
One project is the Seeds of Expertise for the Vegetable Industry of Africa (SEVIA), together with Rijk Zwaan, and sponsored by the Dutch government. It is about training farmers to grow better vegetables and to use better farmer techniques – use of mulch, integrated pest management to reduce the use of pesticides, etc.
Together with the AGK-foundation we have a project in the south of Tanzania. This area was neither known nor suitable for horticulture – it lacks in infrastructure and vegetables were only grown in the wet season. Since about a year, a market is developing, farmers have learned to grow vegetables and have learned the importance of getting higher quality seeds, with as side effect a growing economy of agro-input dealers and nurseries. This means employment for seed growers, training of farmers for growing vegetables, and secondary business supplying to the farmers.
Pitch by Ed Moerman, Koppert Biological Systems
Our core business is the protection of plants against diseases and pests. Part of our products have to do with pollination and natural ways of stimulating the growth. Our mission is to contribute to healthier food, healthier people, and healthier planet. Only a minor part of our clients consists of biological growers, the majority are ‘traditional growers’. It has become clear that the natural control of diseases and pests often works better than chemical control. There is also a pressure from retail to reduce the amount of residue on food, beyond the legal requirements, and that puts further pressure on (NW-European) growers to reduce the use of pesticides. We do export our products to East-African countries and have one subsidiary in Kenya. We started out with rose-growers in Kenya (mainly from Dutch, Israeli, and Indian background), but we now also cater for smallholder farmers. This market is still in development for us. We used to cater mostly large farms and now we provide for these smaller customers with small packages of our products they can afford and that are still profitable for us. Smallholders just like the big players need coaching and support to make it work, and we are providing that within the limits of their financial space. A key element of our success in the Kenyan market was the extensive knowledge of the local market that we gained by having a dedicated team in Kenya.
Pitch by Eelco Baan, SNV
Kenya market development in the dairy sector. Why dairy? A lot of people do not have enough food, spend 50-80% of their income on food, and still have nutrient deficiency. Milk is an efficient way of providing nutrients. There is a huge market opportunity for milk and dairy products.
Constraints for this market are: lack of skills, food safety, greenhouse gasses, small volumes. Opportunities in the dairy sector: increasing production, increasing consumption, a large number of small scale farmers and SME’s, it can provide a daily income to farmers, private sector involvement. “Smart farmers produce safe milk from green cows” is our overall goal. Added to that: increase efficiency of the value chain and engaging a strong network of Dutch actors.
Public-private partnerships: what is very important is that the core must be a viable business case. Keep the partnership simple, have both the market opportunity identified, as well as the key actor who wants to buy into the opportunity. Leveraging investments is important: when other private actors join, the investment will have more impact.
For youth there are vocational training programmes. A more customized approach looking at companies providing jobs, and matching with the youth that is available at the spot.
Address the system, the sector as a whole, to create an enabling business environment. And provide contextualised solutions, linking up with local actors and ngo’s.
Pitch by Mark Kauw, Moyee Coffee
Moyee fair-chain coffee. Moyee is a Dutch-Ethiopian company, providing ‘fair-chain’ coffee. Coffee is a huge industry, but the companies that grow the coffee do not make a lot of money. The green beans are exported and then roasted, branded, and sold in Western Countries. 98% of the value of coffee is added outside the country where the beans grow, 2% is added in the country of origin; and the producing countries rely still on development aid. So, Moyee want to balance the coffee chain by making sure more value is added in the country where the beans are grown. By handling (roasting and packaging) the coffee in the country of origin the chain can be levelled to 50%-50%. We started in Ethiopia because Ethiopia is one of the biggest coffee producers. The plant in Addis Ababa sells to the Ethiopian market and to the Dutch market.
We not think this is definite a solution for Ethiopia, though. The coffee farmers mostly possess about one hectare and need other secondary economic activity: the farm is too small for these farmers with 6, 7 children.
We have a training programme to increase the productivity of the farmers; there is the need to keeping the soil fertile; and we try to offer the farmers a link to the market, so that they get paid a fair price.
What can these companies contribute to the youth in agriculture?
Youth has particular struggles: lack of finance, tools, education.
Gender and age are more general issues. Coffee farmers are rather men than women, but it is also often the man who represents the family so there is often a woman behind every man we encounter. Moyee makes a point to have men and women in their training programmes.
The younger farmers are more entrepreneurial, the older ones hang on to their traditional ways of doing. Training and developing technical skills of the currently unemployed younger people is important, but if there are no jobs available, they travel away from the rural areas anyway. Moyee train coffee roasters, but does not have place for all the 25 participants currently in the programme, so they try to connect to other companies and the government.
In the end, it still is the case that the city has more opportunities for what one has to offer with one’s training. Not all youth is entrepreneurial, they also want the security of a job. They demand also training for broader and higher purposes than what is offered by the in-company training for skills that a company itself needs. Just training for the needs of business is a waste of investment.
Another pitfall here is that the senior level often is reserved for the home country of a company: the trainer is based in the home country and is flown in, the trainees do not have a chance to become trainers themselves.
There is a trend of colonization by urban youth because some of them have access to financing and so can start business in rural areas, possibly outcompeting rural youth in exploiting certain rural business opportunities. As a result, rural area’s agro-entrepreneurs might rather focus on staple crops.
Demand, the presence of a market is also necessary: in a remote area where purchasing power is low and demand is fragmented, it will be more challenging to put up a business.
About the experience with synergizing the aid and trade agenda through the Dutch Embassy in Kenya.
The goal in Kenya was “to go from aid to trade”. Agriculture is a common interest of The Netherlands and Kenya. We wanted to link farmers to markets and to respond to market forces. Speaking to retailers, processors, exporters, it showed that there was demand, but the quantity and volume of produce, the supply, was lacking. Farmers did see these opportunities to respond to the gaps in the market, though. Agricultural entrepreneurship is the key, not only to farming as a business and to provide for an expanding population, but also for our trade and aid agenda.
There is a huge technology gap between what we have developed in NL and the situation in Kenya. How to close this technology gap? Sometimes it is a business reality that other technology, for example more low-cost technology developed in India, is much more suited for the Kenyan context. Two pillars for our approach with dairy farmers: First, investing in local capacity and investing in a market for Dutch technology. Second, creating an ecosystem where the Dutch sector can become relevant to the local market, innovating for those as low down the pyramid as possible.
This is done through partnerships with the profit and the not-for profit private sector. A company is interested in meeting its bottom line: if the business case does not work, they disinvest. One cannot blame a company for this; it is what they have to do to stay in business. But within a partnership, one can seduce companies to have more sustainable and inclusive business cases.
With the trade and development agenda, it was important to hit the break-even point directly and right away. Semi-subsistence small holders are in agriculture because it is their means of survival, and they have very few other opportunities; they are not farmers by choice and will not invest in many technologies that are innovative and risky. That is important to be conscious of: innovation is risk! In our programmes, we started from a different level. We started with the larger and medium sized farmers with inclusive business models. These could be English born and former colonial farmers, but also urban professionals with assets who want to invest (“telephone farmers”). These are people with networks and access to markets and a sense of technology, and they start to apply their business experience to farming. And, these also could be cooperatives or farmer-led businesses that can create the economy of scale that make farmers less vulnerable to market forces.
Eventually we worked also with horticulture and aquaculture, and with the entire pyramid of agro-producers. What we experienced was that a simple technology transfer, ‘copy and paste’, does not work. One has to invest locally in business cases in the field. SNV worked together with PUM to have experts available on a more continuous basis, and also with students of HAS-Dronten. These Dutch farmer sons connected with local consultants and capacity builders who were setting up their own business cases as advisors, and with training centres for farmers.
Two parts of the Dutch diamond were lacking in our set-up. We, the Ministry of Foreign Affairs, were the public partner, together with the Kenyan public sector. But they were mainly interested in our money. We were weak sparring partners on the enabling environment because we did not have huge amounts of money. Getting the knowledge sector involved was needed to assist in up-scaling and validating our assumptions and test them. Only in this way can we develop evidence based policy recommendations, together with local universities – that always makes a better impression, when it is also said by local sources. In the end we had a diamond starting in Kenya and probably this will work in other countries.
One pitfall of this approach is mentioned. When, in the case of The Netherlands, Dutch businesses are involved, it will start to function as development cooperation again. It is then about what the Dutch can offer to, in this case, Kenya. But the proper approach would be that it makes sense in the local context, and the Kenyans can make profit from the investment.
Koppert is a good example of the latter case; they started at the top of the pyramid, and because they already were in Kenya, they were looking for other opportunities for selling their products.
Moyee coffee: we were able to convince the Ethiopian government of the benefits of the ‘fair chain’. There is still a huge amount of money going on in development aid, and a huge amount made on their products being exported. Aid and trade should work together. And local communities should benefit, the investment of Dutch companies should not be the benefit for a Dutch shareholder.
Ethiopia and its human rights situation is an example of how understanding local contexts and the political economy of a country and specific value chains is crucial to make responsible and sustainable investments, both with public and private resources.
A good business case, enabling environment, but also buyers are needed. It is a complex matter, illustrated case of the business that forgets the irrigation side.
You need the local government for change: your investment otherwise does not work. Aid can still be necessary sometimes to leverage the necessary policy influence you need.
“Food-economy” would be a better term and captures the wider context of the issues.
Basic entrepreneurial skills combined with technical training is pivotal, not only the one or the other.
foodFIRST theme 2016/17 “The African future is for young, well educated, market oriented and organized farmer-entrepreneurs” — more to this theme on: A policy paradigm for rural development cooperation in Africa, Vijverbergsession of 2 December 2015.