Proposal by RMI Development for Reducing Smallholder Supply Risk Through Access to Finance

RMI Development

Proposal

Reducing Smallholder Supply Risk Through Access to Finance

This proposal was created by RMI Development.

SECTION 1: BACKGROUND

Project name: Reducing Smallholder Supply Risk Through Access to Finance

Name of submitting organization: RMI Development

Proposed skill contributions:

Proposed partners: SPACE Development

Background: The challenge of agribusinesses looking at ways of strengthening their supply chain by developing models of inclusiveness with small scale farmers is ubiquitous across many commodities in Africa. In the past commercial relationships with small scale farmers were more often than not at arm’s length where price and various forms of coercion were the main factors driving the relationship between agribusiness and small scale farmers. In recent years things have begun to change as agribusinesses began to realize the benefits of a more Partnerial and long term relationship with their farmers. Terms such as shared value and social licence to operate began to permeate into the vocabulary of agribusiness as they have attempted to make farmers a more sustainable and resilient part of their supply chain. RMI have been at the forefront of many of these initiatives. A number of the projects that RMI has undertaken over the last ten years have been focussed on understanding the constraints faced by small scale farmers based on these learnings and helping agribusiness design models of support which strengthen the farmer-business relationship.

Of particular relevance to this assignment are the following projects that we have undertaken:

Many of these projects along with a number of others undertaken by RMI in the last 10 years have taken place in Tanzania. It is estimated that RMI has spent over 3000 senior man days on assignment in Tanzania. This has resulted in our team having an excellent understanding of the agricultural and development landscape in the country. For a number of the projects that we have undertaken we have partnered with SPACE Development and have a good working relationship with them. This partnership with SPACE builds on the RMI experience in Tanzania but also ensures local knowledge and solutions form an integral part of the assignment. The project director for this assignment, Ian Sherry speaks fluent Swahilli which is a considerable advantage in working in Tanzania.

Rural communities engaging in agricultural production of crops such as vanilla have a number of coping mechanisms in order to maximize their use of available resources. Our experience is that farmers fall into three main categories depending on a number of different factors inherent in their livelihood strategies. These phases are a survive phase, a growth phase and a flourish phase. In an ideal world and given the right support these phases are a continuum and farmers should progress until the flourish phase is attained. This seldom happens however as structural barriers in the enabling environment, in the support given to the farmers or the agricultural policies and strategies in the country becomes a barrier to progress. Understanding this is important for any agribusiness as farmers in survive mode, are inherently uncertain producers as their vulnerability impacts their ability to produce (especially in non-food crops like vanilla). Farmers that are predominantly in the flourish mode are far more resilient and agricultural production is therefore far more certain.

As RMI we therefore understand that in order to increase the surety of supply of any commodity, one needs to ensure that as many farmers as possible growing that commodity are flourishing. In order to do that, one first needs to segment the farmers to ensure that each farmer segment receives the right training and support (Our experience is that in any farmer population there are a number of different groups). We use a segmentation tool based on farmer’s attitude and their competencies and circumstances to describe each of the groups within the farmer population. Based on this understanding of the farmer population we can describe pathways to move different farmer groups from survive to grow to flourish. In describing these pathways to change we get a clear understanding (based on qualitative and quantitative research undertaken) of the enablers and barriers to change. This will allow us to design interventions to enhance the enablers and remove the barriers to change. Our experience working on similar projects are that some of the barriers to change are not always that obvious and require a good depth of knowledge and understanding of the farmers and communities. In one coffee project that we worked on one of the barriers identified was dysfunctional households at a social level. While the agribusiness involved thought that it was not their place to support in the social structure of households our research showed that the household was in fact the unit of production. A weak household therefore translated into dysfunctional production. By strengthening the household though activities such as food security initiatives and financial literacy training of female members of the household a positive impact was seen in the coffee production.

 

SECTION 2: PROJECT APPROACH

Rural communities engaging in agricultural production of crops such as vanilla have a number of coping mechanisms in order to maximize their use of available resources. Our experience is that farmers fall into three main categories depending on a number of different factors inherent in their livelihood strategies. These phases are a survive phase, a growth phase and a flourish phase. In an ideal world and given the right support these phases are a continuum and farmers should progress until the flourish phase is attained. This seldom happens however as structural barriers in the enabling environment, in the support given to the farmers or the agricultural policies and strategies in the country becomes a barrier to progress. Understanding this is important for any agribusiness as farmers in survive mode, are inherently uncertain producers as their vulnerability impacts their ability to produce (especially in non-food crops like vanilla). Farmers that are predominantly in the flourish mode are far more resilient and agricultural production is therefore far more certain. As RMI we therefore understand that in order to increase the surety of supply of any commodity, one needs to ensure that as many farmers as possible growing that commodity are flourishing. In order to do that, one first needs to segment the farmers to ensure that each farmer segment receives the right training and support (Our experience is that in any farmer population there are a number of different groups). We use a segmentation tool based on farmer’s attitude and their competencies and circumstances to describe each of the groups within the farmer population. Based on this understanding of the farmer population we can describe pathways to move different farmer groups from survive to grow to flourish. In describing these pathways to change we get a clear understanding (based on qualitative and quantitative research undertaken) of the enablers and barriers to change. This will allow us to design interventions to enhance the enablers and remove the barriers to change.

Our experience working on similar projects are that some of the barriers to change are not always that obvious and require a good depth of knowledge and understanding of the farmers and communities. In one coffee project that we worked on one of the barriers identified was dysfunctional households at a social level. While the agribusiness involved thought that it was not their place to support in the social structure of households our research showed that the household was in fact the unit of production. A weak household therefore translated into dysfunctional production. By strengthening the household though activities such as food security initiatives and financial literacy training of female members of the household a positive impact was seen in the coffee production.

The TOR are clear in that NEI is looking at developing a strategy that leads to them receiving a continuous and assured supply of vanilla. They require this to be done by getting a clear understanding of who their growers are and what motivates them, and then to use this knowledge to design a series of support interventions for their farmers. We strongly endorse this approach of starting with the farmers and designing strategies and systems of support around them.

The TOR is divided into three work streams with very close linkages between the three. We would see significant merit in one consultant doing all three work streams as to strengthen the linkages between the different outcomes. This is particularly so where survey are done with the community which could be combined to save both cost and to mitigate the impact of survey fatigue on communities. While we have priced the work streams individually, should RMI be awarded the three contracts, we would be happy to discuss how the savings made could be used to strengthen or enhance other aspects of the project.

SECTION 3: ACTIVITIES AND DELIVERIES

Activity 1: Assess SHFs’ knowledge of financial products and services, conditions for feasibility and the impact of access to finance on crop yields/quality
Description: The first phase of this work stream will to undertake a Knowledge, Attitude and Perceptions (KAP) exercise regarding financing of farmers growing vanilla. Our approach for this work stream will be to initially engage with a wide range of stakeholders including NEI staff, Government extension and financial regulatory staff, village leadership, staff from banks and other financers that are financing similar projects to understand the institutional challenges to financing vanilla growers. We will also undertake a desktop review of best financing practices for smallholder farmers in Tanzania. We will also work with NEI to develop a broad feasibility framework for the financing of vanilla growing activities to ascertain the quantum of financing required and potential risks associated with the financing of vanilla Based on information obtained in this we will produce a discussion paper outlining best practices and associated risks and scope for intervention for NEI to engage in the financing activities of their SHF’s

In conjunction with this exercise, we will design a quantitative and qualitative survey (envisaged 60 households in 4 villages + group discussions in each village) which will be used to canvass the views, aspirations and perceptions of farmers regarding the subject of financing of the vanilla crop. This may include a number of key informant interviews with key stakeholders. This exercise will allow us to clearly understand financing from the perception of the farmers.

A financing workshop will then be held where the information collected in the data gathering phase of this work stream will be presented and discussed. The outcome of the work stream will be broad level agreement on the main behaviour driver of farmers with regards the supply of finance, agreement on farmers financing needs and confirmation of risk levels perceived by farmers and other financing stakeholders along with possible risk mitigation activities.

A key question that will be answered as a result of this phase of the study will be: Is access to finance a constraint to the production and supply of vanilla to NEI.

Duration:Twelve weeks

Deliverable:

Outputs:

    • Inception report
    • Financing discussion paper
    • Research report
    • Proceedings of financing workshop

Outcome:  NEI  understands  its  SHFs’  knowledge/perception  of  financial  services,  and  their key  barriers  to financial inclusion Identify relevant financial services products and delivery partners.

 

Activity 2: Identify relevant financial services products and delivery partners
Description: This phase of the work stream will focus on developing financing options and discussing and choosing
the most viable option for SHF’s producing vanilla. We will look at existing finance models and service
providers, loans and collateral mechanisms in Tanzania and Internationally. Based on this we will
develop a series of financing options (2-3) which we will be discussed in more depth with different
stakeholders. We will access each option against agreed criteria such as impact on productivity and
relative risk. We will also broadly describe the implementation framework and capacity requirements
to implement each option.

Duration: 5 weeks

Deliverable:

Outputs:

    • Report on financing options

Outcome: NEI understands the impact of access to finance on crop productivity, quality, and sustainability in SHF households.

Activity 3: Pilot relevant financial services for SHFs
Description: This phase of the study is to choose and Pilot relevant financial services for SHFs. The first activity will be to Take Options to selected Financial Partners and other stakeholders and adapt where required. Based on this we will choose one option to be taken forward as a pilot. We will then Agree TOR for Pilots with Financial Partners. Hold a Workshop with NEI, Farmers and District Options and Areas for Pilot. At this workshop we will Design Activities, Outputs and Outcomes, (A Financing Theory of Change) Design Organization Structure, develop training/presentation materials setting out proposed model, then Agree on Pilot Areas with FPs and Run Pilot with Monitoring and Evaluation. Hold a Workshop with NEI, District Extension and Farmers to Finalise Objectives, Content, Structure and Methods.

Duration: 5 weeks

Deliverable:

Outputs:

    • Agreed financing model
    • A Financing Theory of Change,
    • Training material for the pilot

Outcome: NEI identifies relevant, affordable, and accessible financial products for its SHF network.

 

Activity 4: Identify opportunities and dependencies to scale financial services
Description: This is the last activity of this phase and the deliverable is to Identify opportunities and dependencies to scale financial services. We will design a roll out strategy and will develop the M&E framework to be used once full roll out begins. We will Develop MoU between NEI and recommended FP, Develop ToR for Scale and Submit Final Report giving recommendations

Duration: 4 weeks

Deliverable: 

Outputs:

    • Roll out strategy
    • M&E framework(For NEI at roll out)
    • MoU between NEI and Recommended FP(if appropriate)
    • Final report with recommendations.

Outcome: NEI identifies reliable third-party partners to deliver financial services to its SHF network

 

Project measurables: See below for write up on M & E

Methods of data collection:

    • Interviews
    • Focus Group Discussions
    • Public Meetings
    • Written Surveys
    • Technology
    • Other – See write up

RMI’s methodology for Monitoring and Evaluation is explained here.
Briefly: For each Activity Set, we will design a Theory of Change. This comprises linked
Activities, Outpiuts, Outcomes and Impacts. Our monitors check that the activities have been done,
and the outputs are in place. Our Evaluators evaluate the outcomes, impacts, and the assumptions
and compare with those planned in the Theory. The causal logic and assumptions are also evaluated.
The steps are given here:

Step 1

    1. Develop the Theory of Change for each project component, and jointly for the project as a
      whole.
      The ToC identifies the project activities and their tangible outputs which are needed to produce
      the desired outcomes. ( for example the Activity “training in governance” leads to the tangible
      Output of a Board Charter which in turn brings about the outcome of Improved Governance ). Put
      together, the desired Outcomes, result in the desired Impacts.
    2. Clearly identify the causal logic that link the activities to the outputs, the outputs
      to the outcomes and the outcomes to the impacts; the causal pathways.
    3. Clearly state the assumptions on which the change theory is based. For example, that
      the political situation is stable.

Step 2

    1. Develop indicators for each activity, output, outcome and impact. This is done as part of
      the activity set at the time of execution to suit the actual requirements on the ground.
    2. Indicators must be holistic in nature and properly reflect the clients desired outcomes.
    3. These indicators determine whether things have actually taken place as conceived.
    4. Develop suitable Means of Verification for the selected Indicators. These will be
      quantitative and qualitative.

Step 3

    1. During execution of the activities use the indicators to determine whether the activities
      have actually taken place as designed.
    2. After execution, use the indicators to determine whether the outputs of each activity
      are in place, as designed.
    3. In case of defects or faults, examine the assumptions and causal logic.
    4. Using the indicators, evaluate the desired outcomes and impacts using a set of
      appropriate indicators.
    5. Evaluate validity of assumptions and correctness of the logical pathways.

Risks in project:

Risk management strategies: 

 

SECTION 4: SKILLS AND TEAM

Relevant past experience:

We give below details of three projects that show some of our experience in:

    • Working with a major Agri-industries company to design, pilot and scale comprehensive Outgrower
      Service Delivery in several countries in Africa
    • Working with smallholder farmers in Tanzania
    • Working on new investor greenfield projects in Tanzania

Outgrower Service Delivery Models for Illovo (2012 – 2019)
Location: Kilombero, Tanzania; Maragra, Mozambique; and Nakambala, Zambia
Funders: EU, Solidaridad and Illovo
Project Objective: Develop a Service Delivery Model for the outgrower extension teams at Kilombero Sugar Tanzania,
Maragra Sugar Mozambique, and Zambia Sugar, Zambia.
Work description:
RMI assisted the three estates to design Outgrower Service Delivery Models suited to the different ways the farmers are organized: in Maragra one large apex cooperative with 1500 farmers, at Kilombero 17 Farmers Haulage Associations and at Mazabuka 5 Farmer companies. Number of farmers at these three estates is approximately 22,000.
Desired outcomes were: growers sustainably supplying good quality crop for processing, at sustainable prices.
Essentials were understanding drivers of farmer behaviour, to encourage new farmers to enter, existing farmers to stay, and all farmers to grow in terms of productivity, income and participation in the industry, establishing reachable targets for productivity, encouraging levels of income and empowering degrees of participation.
These three projects formed part of the base work that enabled the Illovo group of companies throughout Southern Africa design the new outgrower strategy with RMI support.

Kyerwa Coffee Project (2011 – 2016)

Location: Kamuli, Tanzania Funder: Self-funded by RMI

Project Objective: To move coffee farmers down value chain from selling dried cherries to casual traders to selling prepared green coffee to specialty coffee roasters

Work description: We worked with 150 farmers in three villages of the Kyerwa District of Kagera. The farmers were growing arabica coffee in a mix crop system of bananas, coffee and vegetable crops. The coffee was sold as dried cherries to passing traders but had a potentially very high value as a speciality coffee if sold directly to roasters.

With young people from the community, we set up a training team to train coffee farmers in working together and improved coffee husbandry. We engaged an extension officer from the Coffee Research Institute, with the involvement of the Ward Extension Office in providing the training and designing the quality assurance systems.

Farmers were taught about (1) the coffee industry, the value chain and their position within it (2) opportunities for making more money by moving down the value chain (3) ways of improving productivity through stumping and insect control (4) ways of getting finance for their crop (5) ways of organising themselves so they could improve quality and sell a higher value product.

We engaged with two banks, NMB and CRBD, to get funding for Capacity Building and Group Formation and advances against cherry supplies. This was not successful. We did obtain funding for advance coffee purchases from a charitable foundation, the Burkhardt Foundation of Germany. We tried to get a loan from a bank to buy a huller without success.

The project collapsed after a major infestation with coffee borer beetle which destroyed the intrinsic quality, and hence value, of the coffee berries.

Bagomoyo Eco-Energy Community engagement Project (2011 -2016)

Location: Bagamoyo, Tanzania Funder: Eco-Energy

Project Objective:

Empower the community to actively participate in the planning and implementation of a 3000ha sugarcane outgrower scheme

Work description:

Develop and implement the community development and outgrower service delivery strategy for the Eco- Energy sugar project in Bagomoyo, including:

    • Engagement with the District and Village leadership on the outgrower project (Informing and discussing)
    • Training of Farmers and the village leadership
    • Developing options with the villages for the implementation of the outgrower project including models for Service Delivery

While the main Project eventually failed due to a breakdown of relations with the government, our efforts were successful in:

    1. Organizing three rice farmer groups in Kiwangwa, Matipwili and Kigame to upscale and commercialize their irrigated paddy rice production (as precursor to the larger outgrower scheme). These projects are still running.
    2. Designing a framework for holistic delivery of Service to farmers and Communities as part of the EcoDev initiative.
    3. Securing funding from IFAD and AFDB: $50 million for infrastructure; $20 million for farm capitalization; and $8 million for capacity building

Key staff experience:

Team Leader : Mike Ogg

Research Design Specialist : Dr Ally Namangaya

Financial Products Delivery Design : Ian Sherry

Pilot Delivery : Reuben Mgonja

Mike Ogg will lead this team. Mike is a South African with more than 25 years working with smallholders in East ideas around outgrower service delivery. He has extensive experience in experience in assessing and developing farmer financing models in Africa and beyond

Dr Namangaya is a Tanzanian development professional and academic with more than 25 years developing and carrying out research with land and agriculture-based development in Tanzania.

Ian Sherry will support the team with his knowledge and experience of Financial Services Delivery to smallholder farmers. Ian has been working with outgrowers for 20 years and has led several initiatives to deliver service to smallholder farmers.

Ruben is a Tanzanian Professional with more than 10 years’ experience working with smallholder farmers all over Tanzania in a wide variety of crops. Ruben holds a Bachelors in Agricultural Economics and Agribusiness Master’s in Business Administration.

 

SECTION 5: FEES, REPORTING AND FOLLOW ON

Currency Selection: USD

Upper fee limit: $49,400; See attached budget.

Payment structure:

    • Milestone/deliverable based;
    • Other

An advance of USD 12,500 to enable us to commence work.

Thereafter full amounts for each activity: staff as budgeted under utilization, Car, Lodging and flights at actual cost.

Reporting processes: N/A

Desired frequency of reporting:

    • Monthly
    • After submission of each deliverable / achievement of each milestone
    • Other – Activity Reports

Interest in follow on work: Yes. We are interested in long term partnership with NEI. We wish to undertake all 3 projects

SECTION 6: ADDITIONAL FILES

CVs

1. Dr Ally Namangaya-rural

2. Ian Sherry

3. Mike Ogg

Workplan and budget

1. Budget

Additional files

1. Reducing Smallholder Supply Risk Through Access to Finance

2. Policies