Presentation by Dr Manyewu Mutamba from GENESIS Analytics, at the Regional planning meeting on ‘Scaling-Up Climate-Smart Agricultural Solutions for Cereals and Livestock Farmers in Southern Africa – Building partnership for successful implementation’,13–15 September 2016, Johannesburg, South Africa

1. Unlocking Shared Value
Engaging the Private Sector in Delivering Climate Smart Solutions for cereal
and livestock farmers
CTA Forum on Scaling-Up Climate-Smart Agricultural Solutions for Cereal and
Livestock Farmers in Southern Africa
13-15 September 2016
Dr Manyewu
Mutamba
Manyewum@genesis-analytics.com
+27 (0)79 907 6996
+27 (0)11 994 7000

2. Table of Contents
1. Overview
2. Why Engage the Private Sector
3. Can the private sector play a key role?
4. What's the business case for Private Sector engagement?
5. Business Models of Private Sector investments
6. What are the barriers?
7. How can these be overcome?

3. Overview
1. Why engage the private sector
2. Can the private sector play a key role in delivering sustainable CSA solutions at
scale? In a smallholder setting?
3. What is the business case for Private Sector engagement?
4. Significant scope for unlocking shared value
5. How is Private Sector investing in partnerships with Smallholders?
6. What are the barriers and how can these be overcome?
7. Who needs to do what to make this the preferred way of doing business?
3

4. Why Engage the Private Sector?
4
Why engage the
private sector
Magnitude of
the CC
challenge
Huge funding
gap
Persistent
weakness in
public systems
Disillusion with
traditional
development
approaches
Farmers are in Business!
Continuing to treat them otherwise is a big mistake

5. Can the private sector play a key role?
1. Yes they can
• Some are already investing in sustainable partnerships with smallholder farmers
5
Company/Program Objectives
The Sustainable Agriculture Initiative at
Nestlé (SAIN)
• Support farmers and promote sustainable development
• Creating Shared Value - to be successful over time and
create value for its shareholders, also create value for
society.
SECO - a wholly owned subsidiary of
Olam international)
• Long-term approach that addresses commercial, social
and environmental needs, we have created a win-win
situation for SECO and the smallholders.
• When they do well, we do well.
East African Breweries (EABL) • The promotion of sorghum as a replacement for barley
• increasing the yields and overall quality
• providing a sustainable market for sorghum
SABMiller • Using locally sourced crops
• less risk of supply chain disruption
• economic boost to rural communities

6. Can the private sector play a key role - cont
1. Current engagement of PS not nearly as much as they could, and nowhere near what
is required
• Isolated cases, mostly big corporates
• Some are transitioning out of necessity, forced by changing realities
2. Most investments not designed as climate smart solutions
• Some are now seeking to climate-proof their operations
3. Current business models amenable to adding climate smart elements
• A basis, lessons, for inclusive climate smart investments
6

7. What is the business case for Private Sector engagement in Climate Smart solutions?
1. Significant scope for unlocking shared value
• Convergence of rational self interest – scope for win-win outcomes
2. Shared Imperatives
• Both businesses and farmers share common climate risks
• Both direct and indirect
» supply chain and raw material risks, financial risks, product demand risks
• Best tackled jointly with those who also face them
3. Businesses reducing their own risk by reducing that of key players in their value chains
• Climate-proof supply chains by building the resilience of farmers
• Help farmers access the technology they need, adopt superior practices, insurance
7
Private Sector Farmers
• Increased quantity and quality of products
• Stable/consistent supply
• More sales/bigger market share
• Quick recovery after disasters
• Lower risk of loan defaults
• Increased profitability
• Access to high quality inputs
• Higher and stable yields
• Secure access to markets
• Insulation from disasters
• Sustainable access to credit
• Increased profitability

8. What is the business case for PS engagement – continued?
Positives go beyond businesses and farmers
• Governments, relief agencies spending less on safety nets, disaster recovery, food aid and
other social services
• Example1: Mongolia Index-Based Livestock Insurance Project (IBLIP)
» Started by Government, transition into a commercial entity
» Livestock losses that exceed 30% covered by the Government Catastrophic Coverage
(GCC), formally the Disaster Response Product (DRP).
» livestock mortality is 6-30%, farmers receive pay-outs from the Base Insurance Product
(BIP), now called Livestock Risk Insurance (LRI)
» Less than 6% mortality, farmers self-insure
• Example 2: Weather based Index Insurance - ICICI Lombard (India)
» Indian Government initially provided insurance at huge cost
» Now insurance companies do not need to assess crop damage for individual farmers
» dramatically cutting transaction costs, making insurance affordable
8

9. Business models of Private Sector investments
1. A whole spectrum of business models
• Basic local sourcing models - one-to-one contract farming, out-grower schemes with
intermediaries
• Example 1: Delta Beverages Ltd - Beverages Sorghum Contract Farming Scheme (BSFS)
» Improved seed on loan
» Access to assured market
» Farmer development programme through training and extension support
Example 2: Windward Commodities Ltd - Climate proofing Chilli supply chains
» Climate proof supply chain for the Windward Chilli Power brand
» Climate smart input package on loan
» Farmer extension support
• Complex ‘ecosystem’ models - tackling multiple risks, multiple partners
• Example: The Agriculture and Climate Risk Enterprise (ACRE) - Kilimo Salama
» Weather based insurance - UAP in Kenya, Societé Rwandaise d’Assurance (SORAS)
in Rwanda, Swiss Re, Africa Re)
» Banks and MFIs providing credit
» Input provision, Training
» Mobile payments – Safaricom, M-PESA
» Global donors (Global Index Insurance Fund, GIIF)
» Government, research institutions
9

10. Business models of Private Sector investments – cont.
1. The ecosystems approach more successful
• Maximise complementarities
• e.g. weather based index insurance not sustainable as a stand-alone, but feasible when
bundled with an input scheme which create capacity to pay premiums
• In turn index insurance enhances the input scheme, allowing farmers to meet repayments
in the event of disaster
2. Raising productivity is the common thread on successful partnerships
• Current levels of productivity too low for sustainable partnerships
• Increasing productivity the glue that keeps the partnership together – unlocks shared value
3. Investing in extension a complex, but key part of productivity enhancement
• Ensuring that farmers meet productivity and quality thresholds
• Innovation needed to ensure commercially sustainable extension support
10

11. Business models of Private Sector investments – cont.
11
Impact of technologies (seed), and extension (ICRISAT research)

12. Business models of Private Sector investments – cont.
12
Company yield 2014/15 (kg/ha) %
Whole company 370 100
GAP farmers 705 190
Yield Gain 335 90
Cotton yield gains from GAP extension (COMPACI
program, Mozambique)
Farmers received no extra/other inputs, but enhanced extension
on GAP, and adopted most GAP measures

13. Productivity
Extension cost
Time (years)
Y0 Y3 Y5
$/farmer
Significant upfront investments for extension, but cost decline over time
Commonly offset by Development
Funds

14. Good returns from investing in extension, even for low value crop
Example of Cotton in Mozambique
14
Company1 Extension Costs2 Number of farmers Extension
costs/farmer (per
season)
Extension Cost
(in Cotton kgs, at $
0.30/kg)
Extension Cost
(in Cotton kgs, at
$0.20/kg)
1 460,000 30000 15.33 51 77
2 1,400,000 66000 21.21 70 105
3 1,350,000 51000 26.47 88 133
4 803.000 73000 11.00 37 55
1
All information based on company figures
2
Based on company information, including, staff salaries, logistics (transport, DSA etc.) and some supervisor costs, calculations and included costs do vary between companies as no standard
model does exist as yet. (Companies were requested to include, staff costs, transport, e.g. motorbikes, fuel etc. and supervision costs as far as they related to extension).
The extension cost per farmer (in cotton kg equivalent) is much lower (max
133kg) than the recorded average yield gain of 335kg/farmer, even at low cotton
prices

15. What are the barriers?
Challenges specific to each of the key players
15
Farmers
• Low productivity (require substantial investments)
• Difficulty of enforcing contractual agreements
• Poor organisation
• Scale issues
• Side selling
Private Sector
• Capacity to make climate risk assessments
• Lack of quality, actionable information
• Uncertainty on climate impacts
• Differing perspectives on the need
• Limited resources for investments, high upfront costs
• Information on vulnerabilities may be sensitive
Broader environment
• Generally difficult operating environment
• Lack of supportive institutional structures
• Slow pace of policy reform
• Suspicion about business intentions

16. What support is required to overcome barriers?
16
• Their role needs to be priced into the business models
• Build capacity to negotiate and manage relations with partners
• More efficient approaches to organising farmers and achieving
aggregation
• Climate risk assessment and risk management strategy
• Originating, structuring, screening, and funding inclusive investments
• Selling the concept to governments, donors, fund managers
• Pushing for relevant institutional reforms, incentives
• Transparent and fair business relations with farmers – inclusive
business code
• Improved appreciation of the opportunities, constraints
• Designing relevant incentive and regulatory instruments
• Frameworks for monitoring, reporting and verification of such
investments
• Showcase resilience and broader developmental benefits
• Targeted use of national budgets to support inclusive climate smart
investments
• Raise awareness – change mind-sets
• Identify and prioritise investment opportunities
• Showcase financial and economic feasibility
• Value for money – sustainability, scale, resilience building
Private Sector
Governments
Donors and
fund managers
Farmers
Organisations
1
2
3
4