Outgrowers’ schemes and SERVICE HUBS in Southern Mozambique
Some examples identified in the context of the design of PROSUL
Rationale and Background
1.
In a value chain and innovation system perspective smallholder entrepreneurial farmers are
demanding a more integrated way of service provision for the development of their farming as a
market-oriented agribusiness and a significant source of income. Such services include rural
business development services (on business plan development, marketing etc.), input supply
services, financial services, market-oriented technical advisory services, mechanization services,
research and technical services, etc.. In value chain development most of these services can only
be supplied in a sustainable way by the private sector.
2.
There are two ways for farmers to increase the income generated by their production and
have sustainable access to services, inputs, markets, financial services etc.: (i) enter into an
agreement with a large farmer, a trader or a processor in the form of an outgrowers’ scheme based
on contract farming, or (ii) become a shareholder of the service hub, which is run by private
entrepreneurs in partnership with the public sector and/or the farmer organization.
 Outgrowers’ scheme based on contract farming. In an outgrowers’ scheme farmers deliver
their production to a large-scale farmer, trader or a processor along contractual arrangements
specifying a pre-determined price and a predefined quantity and quality (prices varying with
the quantity and the quality delivered). Generally, contract farming also includes the
provision by the large farmer/trader/processor of services such as agricultural inputs required
by producers to deliver the agreed production, as well as some technical assistance. Inputs
are bought by the trader/collector or the processor, who provides them to the producers and
deducts their cost from the final price. However, contract farming has disadvantages: (i) side
selling, when production can be sold through different channels, producers may find more
profitable markets and could sell to those markets instead of respecting the terms and
conditions of the contract farming; and (ii) asymmetric balance of power: large
farmers/traders/processors are in a better position to dictate their terms and conditions as they
have access to markets. In most cases, producers lack price information and have limited
bargaining power, so that they must accept the price set. In contract farming, only a part of
the added value (generated by the processing activity or by the storage) is passed on to the
primary producers or smallholders. Higher up chain actors will always try to minimize the
purchase price paid to producers so as to ensure a substantial margin and profit for
themselves. As the farming contract ensures them good quality and predefined quantity, they
can pass part of the incremental profit onto producers, but that will most of the time represent
a small fraction of the overall profit generated.
 Shareholding in a service hub, which can be implemented as a limited liability company,
whose shareholders can comprise: (i) producers (either individually or through their
organizations), and (ii) private investors (including traders, processors, collectors, exporters
or any other third party). The limited liability company will own the equipment and
infrastructure that will generate the added value (for example processing equipment, storage
facility, and refrigerated trucks). By holding equity in such limited liability companies,
farmers will also benefit from the profit through the distribution of dividends. Contract
farming can also be applied in the context of a limited liability company (see Attachment 1
for details).
3.
The Mozambican Government policy endorses the development of service centres run by
private sector and farmer associations (PEDSA 2011-2015). The PEDSA refers to the
establishment of Agricultural Service Centres, which are centres where farmers can have access
to all kinds of services for the implementation of their business plans. Agri-service centres are
also operating and foreseen in various forms by CEPAGRI’s National Agribusiness development
Plan (“Centros de Agro-Negocios”), and CEPAGRI’s Mechanization Strategy (“Centros de
Servicos”), as well for farmer managed centres (“Casas Agrarias” in Gaza and Niassa), District
Union Service Centres (UNAC), NGO supported centres (Business incubators, Rural Business
Centres) etc.
4.
The general principles emerging from these strategies, which are also relevant for
PROSUL are:
 Service hubs start off as a partnership between public and private sector, including the
organized smallholder entrepreneurial farmers
 For service hubs to become sustainable they will require an income generating activity, as in
storage, processing or otherwise.
 Service hubs function as one-stop service centres with input supply services, technical and
business advisory services, financial services and information services on market and
production opportunities.
 Service hubs are managed by the private sector, in partnership with the public sector and with
an administrative role for the farmer organization.
 Service hubs are shareholder models as in a Limited Liability company, in which the
shareholding farmer organization is gradually taking over from the public PROSUL
investment fund. This model has less risk for smallholders than the cooperative enterprise
model, which can go bankrupt with loss of all assets, as well as with a remaining debt for the
members. In a LLC shareholders will equally lose their share capital, but the administration
cannot be held accountable for the debts.
 An independent investment fund is needed to hold the shares of farmer organizations and
private sector in the transition phase.
Some practical examples in Southern Mozambique
5.
Outgrowers’ schemes. In an outgrowers’ scheme, farmers deliver their production to a
large-scale farmer, trader or a processor along contractual arrangements specifying a predetermined price and a predefined quantity and quality (prices varying with the quantity and the
quality delivered). Generally, contract farming also includes the provision by the large
farmer/trader/processor of services such as agricultural inputs required by producers to deliver the
agreed production, as well as some technical assistance. Inputs are bought by the trader/collector
or the processor, who provides them to the producers and deducts their cost from the final price.
6.
The PROSUL design mission identified several examples of outgrowers’ schemes in
horticulture in the Southern Region:
 Horta Borges in Moamba. The private entrepreneur has leased from the District Government
five 50 m3 (total 250 m3) cold storage containers for the storage of potatoes (the price is 50%
higher at Christmas, two months after harvesting) and of “seed potatoes” for the next growing
season. Smallholders can also store there for a fee, but this is not yet happening much in



practice. The private farmer (and his son) are interested to provide more storage and packing
house services to smallholders;
Piri-Piri Elefante in Marracuene provides piri-piri plants to smallholders and buys back the
produce. In practice service provision has started (basic production course and some further
technical advice), but buy-back has been limited due to flooding and side-selling;
AgriSul in Chokwe. Agrisul also provides piri-piri plantlets to outgrowers, as part of a
contract for piri-piri production and sugarcane production
A private firm (Van der Merwe) in Nhacoongo in Inharrime District runs an outgrowers’
scheme for the production of baby and sweet corn, which is packed in the central Nhacoongo
packing house for export through MozFood.
7.
Other potential interest exists with commercial farmers in some of the areas proposed for
PROSUL intervention, notably in Marracuene (Horacio do Carmo wants to start a packing house,
and a NGO-supported horticultural packing house, run by the Positive Youth Association, APOJ)
and in Chokwe/Guijá ( a private farmer Mr. Margarido wants to start supporting small-scale
tomato producers with marketing and input supply services, while LONHRO is investing in a
new tomato paste factory which will contract tomato growers).
8.
Various options, just stopping short of outgrowers’ schemes, exist in terms of interaction
between large and medium scale horticultural producers’ organisations and small-scale farmer’s
organisations. UNAR-Chokwe intends to become an association representing both small and
larger scale commercial farmers and start operating a business centre. AgriGaza, currently in
Guijá, but with ambition to become a provincial organisation, aims to start its own input supply
centre for both small-scale and medium-scale horticultural producers, while Agrarius (largely in
Maputo province) is considering itself to be a lobby platform for improved access (pricing) of
inputs for horticultural production.
9.
In the cassava value chain, there are no examples of outgrowers’ schemes but there are
several possible opportunities were identified by the design mission:
 Some cassava flour processors (UNIDO plant by a Mozambican-Dutch-South-African
Consortium, Asian Mozambican entrepreneur) are planning to start a factory in Inhambane,
and they would be interested in signing contracts with suppliers of cassava chips. This can be
from semi-processing units run by associations, as well as by supply from private farmers.
Cleanstar and the upcoming flour factories will follow this model. Higest is less interested but
still wants to buy chips and will therefore need contracts for chip supply.
 The referred outgrowing companies, notably Cleanstar and the Unido plant, are also
interested in supporting producers and chips suppliers with services, and as such to invest in
services, but this might not be in all districts.
 Some private investors have become interested in cassava production e.g. Madal and Piri-piri
Elefante through a rapid multiplication contract of cassava cuttings with SabMiller. The
referred investors might be interested in outgrowers’ schemes for cassava production.
 Some investors from SE-Asian countries have shown interest in large scale cassava
production, which could be both an opportunity as well as threat for small-scale cassava
producers (Pers. Com. SabMiller)
10. Service centres. Different models are emerging in which smallholder farmers and their
organisations have access to an integrated supply of services provided under one single umbrella,
the service centre. The Mozambican Government policy endorses the development of service
centres run by private sector and farmer associations (PEDSA 2011-2015). The PEDSA refers to
the establishment of Agricultural Service Centres, which are centres where farmers can have
access to all kinds of services for the implementation of their business plans. Furthermore the
National Programme for Agribusiness Development (PNDA) foresees the development of
agribusiness centres in priority economic clusters along economic growth corridors. CEPAGRI’s
Mechanization Strategy also foresees the establishment of service centres, which result from
public-private partnerships provide storage space, input supply, workshops and a wide variety of
services (legal, technical, financial, organisational support and mechanization services). Finally,
UNAC plans for the development of District Union Service Centres in its national strategy and
FENAGRI supports the development of Casas Agrárias under public-private (farmers)
management (FENAGRI, 2011).
11. Service centres are being developed by a range of different actors, along different
appellations and concepts, some already existing experiences are:
 Casas agrárias are currently mainly farmer-owned centres (in the past these were public
sector managed centres). The centres are also often farmer managed with privately run and
leased out input supply shops, tractor services, as well as income generating processing
equipment (e.g. maize and rice mills). Examples of these are found in Xai-Xai along the
Baixo Limpopo Irrigation Scheme (initiated by AfDB funded project), but also in Bilene and
in Niassa (supported by Oikos).
 Business incubators are about the coaching of farmer entrepreneurs or entrepreneurial farmer
organisations in developing their business e.g. the development of business plans; facilitating
access to credit, but also on technical issues. The business incubation process can also be
through a service centre. This is implemented by the Escola Superior de Negocios e
Empreendedorismo de Chibuto (ESNEC), which has started an Agri-Business Centre as part
of its Bachelors Trade Academy in which teachers and students attend the demand for
business development and technical services by local entrepreneurs and farmer organisations.
 Others support a business incubation process such as Miruku (Cooperative of business
development coaches) and Technoserve (International NGO). They provide business
incubation services, although not for the poorest farmers through the strengthening of entire
agribusiness sectors such as poultry, cashew, banana, lentils, soybeans.
 District Service Centres are run by some UNAC’s District Unions with technical advisory
and training services (Chokwe, Marracuene) and input supply services (Marracuene).
Other experiences are however just starting or on the drawing table:
 Maquicentros are centres being started up in some districts in Nampula with private sector
managed equipment leasing, as well as research and technical services, and input and
financial service delivery.
 Rural Business Centres are planned (SNV) with services (e.g. for the banana and mango
production in Boane and Manica) such as input supply; equipment supply and maintenance;
extension and financial services; handling and storage; insurance; logistics; sales and market
development brokering. Three business models are foreseen: (i) a Local Private Sector Player
(as in outgrowers’ schemes); (ii) an experienced Rural Business Centre Player; and, (iii)
Social Private Equity Fund financing the centre
 Nucleus farming and processing hubs are planned to provide access to inputs, value-adding
facilities and markets for smallholder farmers in the vicinity, either through standard
outgrower arrangements or through joint venture partnerships (BAGC). Provide a “full
service package” of support (inputs, credit, extension, access to infrastructure and markets) to
smallholder farmers. The current BAGC service hubs in Beira and Chimoio focus on
information services and are administered by the public-private partnership and are as such
expected to guarantee sustainability.
In all service centre experiences sustainability is a key issue, requiring an income generating
activity. A concern is also the level of inclusion for the presented service centres, as mostly the
slightly better-off or even medium-scale commercial farmers are reached. Experiences show that
the public-sector owned centres proved not to be sustainable, while commercial activities within
the service centres, which were run by associations were also not sustaining.
12. In the horticulture sector, existing service centres have been developed in connection to
irrigation schemes. The following examples were identified by the design mission:






Boane. The Massaca water use association (electrical pumps) runs a Casa Agrária with
storage capacity and office space. An entrepreneur provides tractor services on the Casa
Agrária compound;
Moamba. Block 1 Association has invited two private agro-dealers to provide services on a
competitive basis (Pannar and Omnia). Bindzu, a private service provider (see below) also
provides tractor hire services. The association compounds also has some packing house and
cold storage equipment, which is however not yet operational.
Marracuene. UNAC’s District Union of Association (40 associations) has contracted a
technical advisor for providing training to its member associations. The Union runs a store for
seed supply and has more plans in its small premises for service delivery. Relation with the
private sector (e.g. Piri-Piri Elefante) is still problematic, due poor communication on what
an outgrower scheme is, as well as potential land disputes.
Namaacha. Pala Wassokoti Association, supported by GVC (an Italian NGO) runs a fruit
processing plant, which is seen as an example of farmer empowerment by UNAC. The
ownership of the plant has been gradually transferred by the private management to the
association, strongly emphasizing capacity development.
Chokwe/Guijá. The União de Associações de Regantes (UNAR) plans to open in its premises
a privately run agrodealer shop in Chokwe, which could be the start of supply of reasonably
price inputs to members. AgriGaza (medium scale commercial farmers association) is
considering joining the initiative. UNAC-Chokwe wants to start its own centre however.
Nhocoene (Poiemba, Nyakweni, Chongoene). Several Casas Agrárias (8 in total, 3 were
visited) exist with a variety of functions, and variable in terms of performance. The most
successful elements are: (i) centres are administered and partly managed by the farmer
association;
(ii) some have income generating activities such as processing (maize mill
and rice mill, sale of vegetable seedlings); (iii) some have a private input supply centre; (iv)
several provide technical assistance through the extension officer, often a member of the
association; (v) some also have tractor service provision, but maintenance and spare part
supply needs improvement
13. In the cassava value chain, there are no examples of service centres as such, but there are a
few, small associations providing some services to members. The following examples were
identified by the design mission:

The Josina Machel Association (Inharrime) is small with 9 members (5 women). They have a
collective shed with rale and raspa processing equipment, as well as a collective field of 12
hectares of cassava (for financing the processing operations), while each member grows 2-3
hectares of cassava. They produce 5 000 Kg of rale annually. The processing equipment was
acquired with support from IIAM and CFC. They can also produce raspa, which hardly sells,
while rale is sold at a premium because of its quality (well-packed and no sand).The
association also leases out oxen with ploughing equipment.



Nhacoongo research site (Inharrime) has been partly privatized through a lease. The SouthAfrican owned outgrowing company involved in baby and sweet corn export is interested in
cassava processing (for flour) and is involved in compost making for local use. IIAM would
choose this site for the cassava variety rapid multiplication primary unit.
The Zamezame Association in Zavala, has only 4 members (but many associates), and
produces rale in its unit, i.e. a small shed with the rale and raspa processing equipment. They
add value by mixing rale with sugar and milk powder. They used to sell raspa to a local
bakery (Laura Vangine in Inharrime). The starch produced from the water resulting from
pressing the grated cassava, fetches a special price (50 MT/kg), illustrating the demand for
high quality flour.
The Adecha association (25 members) in Zavala has signed a contract with Petromoc for the
supply of cassava biscuits to all fuel station shops in Gaza and Inhambane. The business uses
relatively small amounts of cassava flour (high quality) but margins obtained on the biscuits
are attractive. The Matimbine Association (33 members) in Manjacaze District, Gaza, has
been supported by Save the Children with a well-situated potential service hub for cassava
processing (equipment yet to arrive, and no water or electricity supply) and fruit processing
unit (yet to be purchased). Members have been trained in processing and are producers of
cassava (some 5 hectares each). Their business plan is to produce quality fresh tubers for the
market (trucks come to collect these), process the rest into rale and use the left-overs for their
piggery.
All units complain about the shortage of water (only Josina Machel, has some rainwater
harvesting system). All try to get some additional added value to the rale or cassava flour. Three
Districts were visited, others units reportedly exist in other districts. The scoping study needs to
analyse further the viability of such centres and the opportunities for using these as service hubs.