Successful value chain support through SMEs: key learning from Cordaid programmatic evaluation

“SME SUPPORT IN RELATION TO SMALL PRODUCERS AND VALUE CHAIN DEVELOPMENT “

Presented to Strategy Meeting on Value Chain FinanceUtrecht

19 November 2009

Objectives of the evaluation:

1. Assess results and indications of development impact of various experiences among small producers.

1. Assess effectiveness and efficiency of Cordaid support package (mix of loans, equity and donations) from SME perspective and perspective of the small producers

2. To provide inputs into Cordaid policy on SMEs (related to small producers and agricultural value chains).

Scope of study• 12 field case studies - in Africa and Latin America, plus 11 desk case

studies (also Asia)

• Africa: mainly local SMEs -contract farming/ outgrower schemes; In Latin America: trade loans and equity for Northern companies, sourcing from farmers organizations and cooperatives

• Support: direct loans, bank guarantees and grants (often for embedded extension).

• Assessing development outcomes at three levels

• And, analysis of link between Cordaid screening mechanisms and support package on performance

Development outcomes achieved?

• Farmer level:• Improved livelihoods of farmers, and level of

organization/ capacities• SME level:• Business outcome (financial performance)• Chain development outcomes (quality relationship)

CRITICAL FACTORS EXPLAINING DIFFERENCE IN PERFORMANCE OF SME-FARMER LINKAGES

Evaluation tested 9 criteria of design and management capacity:

1. Viability of market strategy

2. Agronomic and livelihood feasibility

3. Management capacity of the marketing firm

4. Management capacity of farmers

5. Financial viability of the supply chain

6. Conditions for balanced risk sharing

7. Conditions for building stable commitments

8. Reasonably enabling environment

9. Conditions for adapting to changes

The factors were used as to review feasibility of each scheme looking backward.And then compared with present/final status of each project

Critical factors for success

• Realistic estimation of costs and difficulties of setting up a viable supply chain (esp when SME is providing embedded services) – factor 5

• Adequate incentives for mutual commitment between SME and farmers –factor 7

• Adequate risk management strategy- factor 6 and 9

Case Partner name 1 2 3 4 5 6 7 8 9

F1 Cheetah Malawi ++ ++ + + --- - --- -- --

F2 CCPK Tanzania ++ ++ ++ + ++ - --- ++ -

F3 Lima Tanzania ++ ++ + --- - ++ --- - -

F4 Honey Zambia +++ +++ --- --- ++ ++ ++ + +

F5 Biosustain Tanzania ++ ++ - ++ ++ -- ++ ++ ---

F6 QFP Tanzania + --- -- + -- --- --- + --

F7 Bezamar Ethiopia +++ +++ ++ ++ ++ +++ +++ ++ ++

F8 BEEPZ Kenya Tanzania ++ ++ +++ + -- + - + ++

F9 UCIL Uganda + +++ ++ -- ++ - - - +

F10 SAITE Bolivia ++ ++ ++ ++ ++ - -- - -

F11 COSURCA Colombia +++ +++ +++ ++ ++ ++ ++ -- +

F12 PROASSA Peru ++ +++ +++ ++ ++ ++ ++ - +

D1 Tongu Gold Farms Ltd + -- + -- -- - --- - -

D2 Cotton Tree Foundation Ginger Enterprises + +++ -- - --- -- - - -

D3 Vasso Agroventures Limited ++ - + - - -- -- + +

D4 TANPRO - ++ -- - - - -- + --

D5 Gouda Gold Limited -- + ++ - --- - -- - ---

D6 Liberation Foods/ NASFAM -- ++ ++ + - ++ +++ + +

D7 Apinec Agro Industry Plc + +++ - - + ++ ++ + +

D8 Zameen Organic Private Ltd + ++ + + + + + + +

D9 FARMCOOP + - - -- - - - + -

D10 Agrica BV/El Cafetal + ++ - - - - -- - -

D11 Central de Cooperativas Cafetaleras de Honduras + ++ -- - -- + - + +

Positive influence: + moderate ++ high +++ critical Negative influence: - moderate – high --- critical

Successful scheme Struggling scheme Near-failed scheme Failed scheme Inconclusive scheme

1.Viability of market strategy2.Agronomic and livelihood feasibility3. Management capacity of the marketing firm4. Management capacity of farmers5. Financial viability of the supply chain6. Conditions for balanced risk sharing7. Conditions for building stable commitments8. Reasonably enabling environment9. Conditions for adapting to changes.

MAIN OBSERVATIONS ON IMPACT

Cordaid supports SMEs as entry point to connecting smallholders to markets (where conditions are difficult and access to finance is very limited) both for SMEs and farmers. What are outcomes of this support strategy?

Livelihood outcomes: projects were very relevant in improving small farmers livelihood systems when most conditions were met for both:- economic viability;- farmers empowerment in the scheme, with strong mutual commitments.

Note: Some schemes were successful financially but had little significant livelihood impact. Others had high positive livelihood impact even while the company was still struggling.Income generation does not mean necessarily empowerment.

Chain partnership outcomes

• Farmer empowerment in chain start with clear role in supply chain- contributing to cost effectiveness. Some level of farmer organization needed.

• SME may deliver services directly linked to supply quality and efficiency.

• They are not the right actors to support farmer organization.

Business outcomes

• Short term view of achievement of break-even does not guarantee consolidated business.

• “Easy”donor money may produce biaises. SMEs need specific BDS services from design stage through implementation.

MAIN LESSONS FOR CORDAID

1. Support package (mix loans/ guarantee, and grants) was highly relevant when there was a well designed scheme with good due attention to critical factors.

Thus: Cordaid must improve screening, to include all 9 critical factors of feasibility. And improve monitoring of project performance (incl. some local monitoring and coaching) Improve integration grant/loan management

2. Over optimistic projections and business plans are major pitfall.

Thus : Cordaid must use graduality in support

3. In order to ensure livelihood and chain development outcomes multiple entry points are necessary in the chain.

• Thus: SME cannot shoulder alone all services needed. • - Farmers need to improve their management capacities in

autonomy from the marketing SME. • - SME need specific TA. • - Contract farming schemes may be good starting point, but

for good development outcomes - s need to build multi-stakeholders approach to chain development.

4. Sustainability depends on well defined exit-strategy• Stages in development to be defined in milestones• Direct financial support to kick-start an innovative scheme, must

move towards transition to local funding agencies and institutional support.