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Securing Rural Livelihoods Through Inclusive Business Models(IBMs) Lessons from Uganda 26 th -27 th April 2013 Presented by: Connie Magomu Masaba Project Manager At the PAP/EALA Seminar in Kigali, Rwanda. Inclusive Business Models (IBMs).
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Securing Rural Livelihoods Through Inclusive Business Models(IBMs) Lessons from Uganda 26th -27th April 2013 Presented by: Connie Magomu Masaba Project Manager At the PAP/EALA Seminar in Kigali, Rwanda Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project – Phase II
Inclusive Business Models (IBMs) • involve close working partnerships with smallholder farmers and communities, • share value among the partners. • Include smallholder farmers in mutually beneficial business relationships with clear enforceable agreements Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project-2
Recent developments in the agric sector • Increasing interest in Agriculture by Private sector- FDI and local entrepreneurs • Governments slowly increasing investment • Some banks getting interested in lending to sector Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Role of Smallholder farmers • The approximately 500 million smallholders are main investors in agric. in developing countries. • Smallholders support a third of the global population, • produce up to 80 per cent of food in t developing world. Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Smallholder needs for effective contribution • secure land and natural resource rights • better access to inputs, • technical expertise, • agro-processing and other off-farm opportunities, • Finance • markets. • Effective Partnerships /involvement in Agric. business Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Inclusive Business Models- a Ray of Light • Also referred to as responsible investments • Recognize role of smallholder farmers as active partners in agribusiness • Mutually beneficial and sustainable partnerships make good business sense • Take into consideration social, environmental and economic soundness of investments Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Characteristics/properties of effective IBMs • Ownership • Voice • Risk • Reward Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Uganda - Oil Palm Development as an IBM • PPP with smallholders as effective partners • Funded by IFAD, GOU, Private sector partner (Bidco) and farmers • Nucleus estate/Outgrower scheme model • Import substitution effort- Palm oil most imported agricultural product in Uganda (USD 177 million in 2011) Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Uganda- Oil Palm Devt. • Oil Palm highly productive,- 4tons of oil per Ha per year • harvested monthly so giving farmers high and steady incomes over 25years • Project meets the needs of the smallholder farmers to effectively contribute to development • Government has effective role in the partnership with farmers and private sector partner Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Establishing the partnership • Agreements in place with secured interests of all partners • Transparent process of getting private sector partner- advertised the tender • Sensitization and involvement of the communities from start of project • Ownership, voice, risk and reward clearly exhibited in partnership Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Ownership: • Farmers own 10% of investment and Private sector own 90% • Farmers own their own plantations (3,500 ha) while Private sector owns 6,500 ha of oil palms • Over 1500 farmers participating as smallholders with about 600 women farmers • Some farmers supported to acquire land for production Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Voice • With 10% shareholding, farmers have 2 positions on the board of the agribusiness • Farmers represented on the Oil Palm pricing committee • Farmers represented on the services cost panel • Farmers organised in farmer organisation with leadership democratically elected right from grassroots (units, to blocks to district level) • Hold an annual general meeting • Farmers consulted on issues that affect them, before implementation • Women take at least one third of the leadership positions Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Risk Sharing • Price fluctuation due to changes in international prices. Prices tagged to international price and determined thru a pricing formula- farmers aware. • Farmers access loans for production that are recovered from their sales. • Risk on non performance secured by group guarantee arrangements • Private sector absorbs palm oil market risk- has to buy all farmer produce • Government absorbs risks of failure of oil palm performance due to natural causes Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Risks cont’d • Farmer lands not security for loan hence confident of their land- plantation is security in itself • Ffb inspector stationed at the mill to ensure no unwarranted rejections of farmers produce • Demand for palm oil still high in the region and currently met by imports • Farmers get import parity price Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Reward • Increased incomes for farmers(USD150 per acre per month for mature plantations • Assured of a market for produce • Pricing formula assures farmers of a good price for ffb • Value addition (mill and refinery in place for processing) • Access to technical know how, improved seedlings and inputs • Improved road network (750 km of road network) • Employment creation (2000 employed on nucleus estate, 500 in farmer gardens and over 1500 directly as farmers Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Reward Cont’d • Increased investment in agricultural sector through FDI (USD 120 million) • New income generating activity hence less dependency on lake and forests • Farmers have a say in decisions around price and services • Farmers in some cases receive services from nucleus estate- land clearing, planting, management • Tax income for government form new industry- Refinery and mill Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Impacts of Project Early results • Improved land rights • Increased incomes • Creation of employment • improved infrastructure facilities and services Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Lessons Learnt • effective partnership between rural smallholders and the private sector possible • governments play a positive role • choice of the business partners- must have a heart for the rural people • inclusion of smallholders in all decision-making processes important • building partnerships takes time Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Role of Parliamentarians In IBMs • Ensuring a conducive business environment for both the investors and the farmers • Legal framework that supports IBMs/PPPs • Monitoring of activities to ensure win win situation for all the players in the business • Facilitate confidence building among the partners • Support efforts that bring investments into the Agricultural sector • Support joint venture with Government as an active investor in the interim, then Government can divest its shares Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Conclusion • Business models that support local farmers are more promising and make good business sense • Farmers have proved to be highly dynamic and responsive to market forces • Success of IBMs depends on the level of ownership, voice, risk-sharing and benefit-sharing between partners • Requires sustained support by a range of service providers (government, civil society, private sector) Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project
Finally, Rural people should be: • part of the solution for global food security • a priority for governments, the international development community and any other investors. Ministry of Agriculture, Animal Industry and Fisheries Vegetable Oil Development Project