Conference of Financial Institutions:
"Financing Agriculture and Agribusiness in
Tanzania: Opportunities and challenges“
24-25 November 2014. Arusha, Tanzania
FAO:
Emerging agricultural value chain and value
chain finance approaches for inclusive
development
Prepared: Calvin Miller, Emilio Hernandez FAO-AGS
Presented: Diana Tempelman, FAO Representative Tanzania
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The challenge: POPULATION TREND
Global population 9 billion in 2050
• 70% extreme poverty in rural areas
• 14% global population aged 15-24
yrs
Economically stagnant rural areas
 livelihood opportunity rural youth
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Many faces of rural poverty
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 Climate change
CLIMATE CHANGE in 2013
– Global carbon emissions increased by 2.3%
– 22 million people displaced by natural disasters, 97% in
developing countries
EFFECTS ON FOOD AND FINANCE – need to:
↑ investment in insurance (esp. developing countries )
↑ investment in low-carbon agriculture
↑ finance and investment into irrigation, flood control and
new farming systems
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 Forces driving agricultural
innovation are changing
 MARKET OPPORTUNITIES
 BIOTECHNOLOGICAL ADVANCES
 KNOWLEDGE
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 Sustainable agricultural value
chain?
An agricultural value chain:
all stakeholders in a coordinated production and
value addition needed to make food products.
A SUSTAINABLE agricultural value chain:
• economic sustainability
• social sustainability and is fair*
• environmental sustainability
Fairness in a value chain:
farmers get market rate prices.
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 Stakeholders role in agricultural VCs
Operating Environment
Input
Input
Suppliers
Suppliers
Production
Growers
Transport
Storage
Services
Logistics & VC Services
Food
Food
Processing Retail
Industries Industries
Agri-food Industries
Financial
Financial Services
Services
Business Support Services
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 Agricultural value chain finance?
Agricultural value chain finance (AgVCF) – financial
products and services flowing to and/or through the value
chain to address the needs of those involved.
Principal objectives:
 Align and structure financial products to fit the chain
 Reduce costs and risks of finance
Agri-finance value chain approach?
– All chain actors, processes and markets
– Transaction focus
– Risk mitigation
– Direct and indirect financing
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 Using the value chain:
a transaction and
cash flow financing model
1. ORDER GOODS
3. SHIP GOODS
Small farmers &
agribusinesses
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Building blocks for financial
inclusion and growth
Technical
Increase
assistance to agriculture
Credit and financing
Governmental
andof the chain
financial
enabling
at all levels
intermediation
environment
capacity
development
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Business models for
Ag Value Chain Financing approach
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1 - PRODUCER-DRIVEN business models
ASOPROF Apex farmer organization model - BOLIVIA
National
Buyers
International
Buyers
ASOPROF Services:
• Seed production
• Technical assistance
• Processing
• Marketing/export
• Member profit share
• Financing linkages (not
direct financing)
ASOPROF Bean Association
Producer
Organizations
Farmer
Coops
Farmer
Coops
Producer
Organizations
Farmer
Coops
Individual
growers
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2 - Lead firm business contract –
Micro-Finance Institutions
ICAM Chocolatier Italy relation with cocoa farmers - GHANA
Icam Chocolate
Uganda Ltd
Cocoa exports
Icam SPA,
Italy
Loans to farmers
Reimbursements
Loan channeling
Local
microfinance
organizations
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3 - Facilitated business models –
VALUE CHAIN DEVELOPMENT WITH
INVENTORY CREDIT
FAO – RABOBANK/NMB Foundation - TANZANIA FAO supports
RABO monitors
warehouses
registered with
TWLB
RABO uses
existing relations
with off-takers
linking them with
farmer groups and
monitor market
requirements
interventions to
improve productivity.
RABO offers guidelines
on market needs
FAO brokers
dialogue between
groups and local
buyer and
supports
organizational
capacities.
RABO supports
14loan management
capacities
MODEL HIGHLIGHTS & REVIEW
Warehouse Receipt System
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1 – Tanzania highlights
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1 – Tanzania –continued_
Trade by the Tarakea Rural Cooperative Society under WRS
Year
Volume of coffee
traded (tonnes)
2003/04 151,707
Coffee value received
Net gains captured
by farmers (US$
by farmers (US$/ton)
equivalent)
50,000
0.413
68,268
0.449
2004/05 144,362
60,315
0.417
2005/06 163,152
179,467
1.099
2006/07 224,874
263,103
1.170
2002/03 120,865
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2 – Niger highlights
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2 – Niger -continued-
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Review of the experience
Efficiency gains
WRS - Tanzania
Warrantage – Niger
↑external finance to bulkers / traders ↑external finance for rural HHs’ nonto buy from smallholders
farm rural activities
↑Production and trade: coffee,
↔smoother household cash flows
tobacco, cotton, cashew, & sunflower
↑Price gains within national AVC,
varying / crop
↑stability of grain supply for
domestic and export markets
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Review of the experience - continued
Limitations
WRS – Tanzania
Warrantage – Niger
Governance problems
Productive capacity producers
remains very volatile
Negative impact Government
trade policy interventions
selected crops
Limited repayment due to poor
business environment for offfarm enterprises
No assessment of loans to
production processes.
No assessment loans to
production processes.
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FAO and 3 Rome-based Agencies
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* Weak capacities and limited
access to services for producers
and SMAEs inhibit potential
profitable investments
* Investors seek technical
support to strengthen the
weakest linkages of the
value chain
FAO helps facilitate public and private investments by
enabling value chain actors to be reliable partners for
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agribusinesses and investors
Facilitate credit
access
Reduce
capitalization
requirements
Promote
participation of
private agents
Complement
financial
intermediaries’
guarantees
Partial backing of
intermediaries in
loan collection
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Postinvestment
support for
increased
impact
Access to
finance
(MFIs and
Banks)
Public
investment
Investment
funds
$
Existing
TAF
Enabling
environment
Pre-investment support for potential investee SMEs
Policy advice
linked to public
investment
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Rome-based-agencies
 Principles of Responsible Investments in Agriculture
 Financial Inclusion and Agric Dev.
 Spatial development initiatives
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* Rural Infrastructure and Agro-Industries Division
(AGS) Website
www.fao.org/ag/ags
* Rural Finance Learning Centre:
www.ruralfinance.org
* Contract Farming Resource Center
www.fao.org/ag/ags/contract-farming/en/
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