Business Case and Intervention Summary
Intervention Summary
Title: Ghana Greenfields Investment Programme (AgDevCo)
What support will the UK provide?
How much funding does the UK expect to provide?
DFID will provide £2.47 million over three years (2012 – 2015) through an Accountable Grant
to AgDevco UK for the development of the Tono and Bamboi irrigation schemes in Northern
Ghana. In addition to this, DFID will manage a technical assistance component of £150,000 to
cover reviews during and at the end of the programme.
The total cost of the project will be £2,620,000.
Why is UK support required?
What need are we trying to address?
Ghana has achieved significant economic development in the last twenty years, yet the North
of the country remains poor, with more than two-thirds of people living on less than $2 a day i.
While rural development and urbanisation have led to significant poverty reduction in the
South, this has not been true of the North. Between 1992 and 2006, the number of poor
people declined by 2.5 million in the South, yet increased by 0.9 million in the North. ii
Agriculture is the key source of economic activity in the North, and with less than 10% of
arable land cultivated; it has the potential to transform the region’s economy, if private sector
investment can be secured. Raising agricultural productivity in the North could raise
agricultural GDP growth to over 6%iii and reduce vulnerability of the region to climate change
impacts. Growing conditions exist for successful commercially viable agriculture.
However, making a success of this requires organised, coordinated, large-scale inputs on two
levels – ‘hard’ infrastructure (roads, power, irrigation, etc.) and ‘soft’ infrastructure (input
supply chain, seed research and agronomic expertise, etc.). The North has been isolated
economically and has not been able to integrate itself either with the more dynamic South or
with the Sahel region to tap into external demand and resources. The region is vulnerable to
climate change impacts; particularly rain-fed agriculture that is already experiencing
contracted cropping seasons. It is characterised by poorly organised markets where
transactions are small and infrequent and price, quality and quantity of goods and services are
subject to high levels of uncertaintyiv. It has therefore not been able to attract the investment
required.
What will we do to tackle this problem?
DFID’s support will fund the three-year development costs of a programme which will address
the two primary barriers to private investment in sustainable food production in Ghana: the
deficits of information and infrastructure. It will develop two Public-Private Partnership (PPPs)
farming initiatives, based around irrigation schemes in the areas of Tono and Bamboi in
Northern Ghana. The project will take these to the stage necessary to be a credible
investment for commercial farming companies, and will source concessional (patient) capital
funds to finance the upfront infrastructure needed to make these projects feasible. The
projects would then go through a three year implementation phase, during which the
necessary infrastructure would be built to enable full-scale farming to commence. This would
cover an area of over 2,500 ha for the Tono project and 4,000 ha for the Bamboi project, and
benefit up to 48,000 farmers across both locations through improved access to inputs and
services.
Who will be implementing the support we provide?
DFID is proposing to support the Africa Agricultural Development Company (AgDevCo) to
develop the two PPPs through an Accountable Grant. AgDevCo has significant experience in
setting up commercially viable, and therefore economically sustainable agricultural
development schemes. It was created specifically to provide these services, and is a partner
with DFID in other countries.
What are the expected results?
The expected results of the project, and indicators that these have been achieved, are:
1. Northern Ghana's potential to achieve commercial yields of maize, rice, sorghum and soy
is validated, as shown by:
o The number of test plots of maize, rice, soy and sorghum being successfully
conducted under commercial protocols;
o The most promising varietals are tested and fast-tracked for sale to local farmers;
o The installation, operation and maintenance costs of infrastructure in project areas,
and production potential of sites are established, with technical studies carried out,
including full environmental and climate change impact assessment.
2. Equitable land access arrangements for the two farming schemes, which are acceptable to
the local community, are developed, as demonstrated by:
o A socio-economic profile and mitigation plan is developed for identified tenure rights
holders and affected stakeholders, with focus on safeguarding rights of female
smallholders.
o Equitable land access arrangements finalised with traditional authorities,
communities, and legitimate tenure rights holders.
3. A fully costed and developed PPP structure, investment and implementation plan is
developed, demonstrating required (commercial and social) returns for all PPP parties and
potential capital sources, including local farmer beneficiaries. This will be shown by:
o Detailed cropping plans and financial models validating commercial returns and
shared benefits for local farmers and commercial partners.
o PPP entities and proposed contractual arrangements between them finalized (ie
Scheme Management Company (SMC), Commercial Farming Company (CFC),
Emergent Farmer Company (EFC), Smallholder Farming Company (SFC)).
Business Case
Strategic Case
A. Context and need for a DFID intervention
Context in North Ghana
Despite significant economic development in Ghana in the last twenty years, the north of
Ghana remains very poor, with more than two out of three people living on less than $2 a
dayv. While rural development and urbanisation have led to significant poverty reduction in
the South, similar dynamics have been largely absent from the north. Between 1992 and
2006, the number of the poor declined by 2.5 million in the South, over which period the
number actually increased by 0.9 million in the Northvi. Inequality has also increased more in
the North from a higher base, with a rise in the Gini coefficient from 38.1 to 42.6 compared to
a move from 36.3 to 39.9 in the South between 1992 and 2006vii. Thus the same relative
increase in average per capita income was associated with a poverty reduction four times
higher in the South than in the Northviii.
Agricultural yields in the North are amongst the lowest in the world, largely due to structural
reasons. The North is relatively much drier than the South, which means that crops such as
cocoa, the agricultural success story of the last 20 years, cannot be grown. Growing
conditions do exist for successful commercially viable agriculture. However, making a
success of this requires organised, coordinated, large-scale inputs on two levels – ‘hard’
infrastructure (roads, power, irrigation, etc.) and ‘soft’ infrastructure (input supply chain, seed
research and agronomic expertise, etc.).
Without irrigation, farmers in regions like the North, where there is a significant dry season
that is increasing as a result of climate change, are constrained to growing only one cycle
per year of low-value crops that suffer from variable yields and quality as well as low
profitability. Rain-fed irrigation is, of course, drought prone, with potential for total loss for the
smallholder. This unpredictability reduces the incentive to invest. The North has also been
isolated economically and has not been able to integrate itself either with the more dynamic
South or with the Sahel region to tap into external demand and resources. The region is
characterised by poorly organised markets where transactions are small and infrequent and
price, quality and quantity of goods and services are subject to high levels of uncertainty ix.
This has led to low productivity and output of producers, who are also particularly vulnerable
to shocks, including the harsh effects of climate change. Due to their vulnerability, smallscale producers are highly risk-averse especially in getting into new production. This has led
to limited diversification – a broader range of income sources lowers vulnerability and risk –
of eight livelihoods observed in the SADA region (compared to 18 in non-SADA), threequarters are related to agricultural productionx. Of those engaged in the latter, a higher
proportion in the South has graduated from subsistence to market-oriented farming.
There are other specific factors making development more difficult in the North. Risks are
generally more significant – as reported in Ghana’s Hazard Mappingxi, households in the
North face a number of catastrophic risks including floods with substantial crop losses and
damage to community infrastructure; pest infestations, crop and animal diseases; droughts
and fires. In addition climate change is predicted to increase the intensity and frequency of
these hazards and to reduce the growing season of key cropsxii. xiiiAlso, although land is
relatively abundant and accessible, it is a sensitive issue and has been wrapped up in the
causes of insecurity in the region. The process of acquiring land in the region is complex and
not widely understoodxiv. The land tenure system makes it difficult to obtain contiguous tracts
of land for large-scale production; acquisition of large tracts of land for commercial
investment also has political and social ramifications, and comes with concerns about
protection of smallholder interests.
Rationale for focusing on North and agriculture
Yet the North is not without potential. Agriculture remains a key source of economic activity
in the region and with less than 10%xv of arable land cultivated, has the potential to transform
the region’s economy. Raising agricultural productivity in the North could raise agricultural
GDP growth to over 6%, above the target set by CAADPxvi. Closing the yield gap can
increase agricultural growth by as much as 2.2%xvii. Growth in agricultural productivity also
results from promoting new activities and exploring market opportunities that increase the
value added of agricultural production. There is scope to attract additional processing to
take place in the region – this has already begun in the shea industry, where the export of
raw nuts is declining while export of processed shea butter is on the risexviii.
The strategic location of the north also offers tremendous opportunity to increase trade with
the Sahel; the Governments of Burkina Faso and Mali have been engaging with the
Government of Ghana (GoG) in this regard. Facilitating sub-regional trade will require
investment in road infrastructure and addressing barriers to cross-border trade; there is also
scope to increase returns to investment in infrastructure in the region. According to the
World Bank Country Economic Memorandum, inducing significant sustained growth in the
north requires an increase in and better management of infrastructure - efficient
management and utilisation of irrigation facilities; feeder roads to less accessible mining
areasxix etc. Finally recent donor and Government focus on the north provide further
resources for accelerating the region’s development.
Addressing rural poverty in the North and increasing regional and national food security are
therefore important goals for GoG and its development partners. Agriculture being the
primary occupation, it is sensible for poverty reduction efforts to focus on helping farmers
generate (more) profit from their farms. Many attempts both by GoG and by non-state actors
have been made to address this challenge. The history of the North to date has however
been characterised by inconsistent policies. Although well-intentioned and aimed at
reversing the disparity between the North and South, they have often not been well
implemented, distorting the market and reducing the commercial incentives of local actors.
As there are few strong business networks and associations in the region able to influence
the policy environment and decision-making, and to share knowledge, opportunities and
risks, central initiatives have tended not to be well rooted in local knowledge.
Small-scale NGO-type initiatives have not worked because as above, they have distorted the
market and encouraged dependence on grants and subsidies. Once these are withdrawn,
beneficiaries are not able to sustain the programmes, and revert to subsistence farming.
Models for successful agricultural growth
Where access to reliable water supplies can be coupled with modern inputs and sound
agronomic practices, yields can improve dramatically, often by up to 500%xx. But even where
enabling infrastructure is provided at subsidised prices, such as public irrigation schemes,
success often eludes farmers because of the lack of access to the ‘soft’ infrastructure and
scale economies necessary to produce and sell goods at competitive prices. It is impossible
for small farmers to independently develop the supply chains, market linkages and scale
they need to compete with production from countries where farming is carried out at a vast
scale (eg. Brazil).
One promising way of circumventing the short and broken supply chains that characterise
regions like the rural north of Ghana is through commercial ‘hub’ farms. These can develop
their own sources of supply and market links: high quality seeds can be sourced from around
the world, crop trials used to identify promising varietals that can be further adapted to local
conditions, and appropriate inputs imported and shipped in bulk to the farm gate. In addition,
given their global nature, they have existing market linkages and relationships that allow
them access to the most lucrative markets for their produce.
Equitable partnerships between such companies and smallholders can provide the latter with
access to improved seeds and inputs, growing expertise, farm machinery and markets with
transformative results. But leading global farming companies have been hesitant to invest in
food production in Ghana. “Greenfield” investments in agriculture involve high upfront costs
and risks and attract limited private investment everywhere. In Africa, the one-off start-up
costs, such as land clearing, roads, irrigation and other infrastructure costs, which are not
borne by competitors in established markets, represent an additional barrier to entry for the
private sector, which it has been unwilling to bear, except for a small number of the largest
and most commercial opportunities involving export crops and biofuels (e.g. sugar
plantations). If private investors have to absorb the full front-end costs of infrastructure then
most will either be unable or unwilling to take the financing risk, especially for food crops.
Only the most profitable deals (i.e. export biofuels, huge ‘enclave’ plantations) and
sometimes exploitative ones (i.e. land grabs) will be pursued. This does not have to be the
case. By addressing the key barriers to entry faced by private sector companies, private
investment can be catalysed into win/win business opportunities that sustainably deliver
commercial benefits for investors and local farmers, and development benefits for
governments and local communities.
Public Private Partnerships (PPPs) in agriculture
The great majority of projects involving food crop production in Sub-Saharan Africa – and
Ghana is no exception – are greenfield or very early stage. While many of these
opportunities have the potential to be profitable in the long term they generally involve high
upfront costs and risks, especially when smallholder farmers are involved, which makes it
very difficult to attract commercial investors into them.
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One-off upfront costs include negotiating lease agreements over land with local
communities and landowners; installing basic infrastructure including feeder roads
and power lines; clearing land and improving soil quality; training the workforce.
Key risks are uncertain crop yields due mainly to current climatic variability and future
climate change, and inexperienced management; volatile prices for agricultural
commodities; the potential for policy changes (e.g. export bans) which can cause

major fluctuations in market demand.
Overall profitability of agriculture is relatively low because there are highly efficient
large producers in parts of the world (e.g. Brazil, Mid-West USA, Ukraine) who benefit
from economies of scale and in many cases public subsidies.
Where there has been large-scale investment in primary production of food crops it has
typically been in the form of public irrigation schemes. But these schemes have a mixed
record. Many have failed to deliver sustainable increases in production because of
insufficient attention in the planning stages to market demand and access issues; ineffective
long-term management and scheme maintenance; and consequently a lack of ability or
willingness of farmers to continue paying for irrigation services.
In some higher-value sectors (e.g. sugar, tea, coffee and tobacco) these problems have
been overcome through large farming estates with investment by multinational companies.
But these models are very difficult to make work on a commercial basis for smaller projects
and for food crops where the financial returns are substantially lower. The result is that many
projects with the potential to become profitable and make a significant contribution to food
security do not happen.
A PPP approach is needed to stimulate major new investment in food crop production. If
properly designed and executed, PPPs can offer attractive financial returns to private
investors while ensuring that farming projects make a significant contribution to national food
security and rural economic development. However as with all of these types of partnerships,
the success or failure of a particular project depends in large part on the quality of the project
design.
Rationale for the Intervention
DFID is therefore proposing to support the Agricultural Development Company (AgDevCo
UK) to develop two PPP projects to the stage where they are credible investment
propositions. They will then attract patient capital in the form of low cost, long-term loans, to
build infrastructure, as well as significant private sector investment in commercially viable
food production. The model to be used is a ‘3 Tier Farming Block’ PPP model, based on
successful projects in Zambia and elsewhere in Africa. This combines commercial and
smallholder farming within a single farming block. The main features are:
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A land area of 2,500-5,000 ha divided into farming plots of various sizes and serviced
by roads, power and irrigation infrastructure with professional scheme management
A nucleus farm hub which has on site storage, processing, logistics and machinery
available to lease to local farmers
A commercial farming area (Tier 1) with large scale mechanised production of food
crops typically under pivot irrigation.
An emergent farming block (Tier 2) with individual plots of 10-15 ha under dragline or
sprinkle irrigation
A smallholder farmer block (Tier 3) with smaller plots of 1 ha or with basic furrow
irrigation
The model offers a number of benefits to local communities and the government.

Firstly, local farmers gain affordable access to modern farming infrastructure, inputs,



agronomic knowledge and support services allowing them to achieve significantly
increased yields. They also gain access to a reliable market for their production
which, assuming they receive a fair price, allows them to achieve much higher
incomes.
Secondly, the local community receives royalty payments from the commercial farm
(and in some cases from Tier 2 as well) equivalent to 3-5% of sales. This is on top of
any rent paid for the land in situations where it is community owned. The SMC
collects all rental and royalty payments and transfers them into a community fund
which can be used to fund social projects.
Thirdly, the long-term rights over the land remain with the original owners. Once the
25 year lease has expired and the project debt has been repaid all of the assets on
the land will transfer to the owners which may be the government or the local
community itself. In cases where the land is privately held the project would need to
be designed such that ownership rights were allocated in some agreed way between
the owners and the community.
Fourthly, these schemes have the potential to make a significant contribution towards
national food security for crops such as rice, maize and soya. They also offer reliable
tax revenues to the government.
The programme is well integrated into a number of Government priorities. At a macro level,
AgDevCo’s objectives are highly complementary with the overall strategy to commercialise
agriculture by: linking it to national and export markets, raising productivity, and realising
Ghana’s potential for higher value products.
Further, there has been a marked increase since the 2008 food crisis in the number of
investment funds targeting African agriculture. The sums available for investment are
considerable, with over $1 billion raised in 2010-11 alone. Most funds explicitly rule out
investments in primary agriculture (unless for high value crops such as sugar or oil palm)
preferring instead to focus on agro-processing opportunities which offer the potential for
higher returns. The PPP approaches proposed in this project offer a way of tapping this new
pool of capital and making it work towards achieving food security.
In addition to the large numbers of farmers who will directly benefit as participants in the PPP
farms, the farms will enhance the incomes of farmers within 10-20 km by improving access
to desperately needed agricultural goods and services, catalyse investment into associated
upstream and downstream businesses in the value-chain, and significantly improve food
security.
B. Impact and Outcome that we expect to achieve
The aim of DFID’s funding for the three-year project development phase is to ensure that two
agricultural schemes in Tono and Bamboi are deemed commercially viable by investors. This
would have the impact of increasing access of 48,000 local farmers to affordable irrigation
and key agri-inputs, and making 6,600 hectares of greenfield land available for production.
The indicators demonstrating that the schemes are commercially viable are that:


Commercial farming companies are contractually committed to run the two farming
schemes;
All the required patient capital ($30.7 million) is raised; and that

The Management and infrastructure partners have been engaged to run the farming
schemes.
It should be noted that DFID will only fund the development phase of the project. The
outcome is thus that the project has been prepared, such that it is ready for commercial
investment. Once the patient capital and private sector investment has been secured, the
implementation phase would then start. It is during this phase that the major infrastructure
would be built and land cleared for production. Over the three year lifetime of the DFID
funding, it will therefore not be possible to demonstrate impact for the schemes as a whole,
as large-scale production would only begin around year five. The impact is therefore, that
preparations are ready to enable 48,000 farmers to have access to the improved farming
opportunities that the schemes will create, covering the total area of land to be served
through the irrigation infrastructure.
Over a longer period (and thus which cannot be measured during the lifetime of the project),
it is expected that the impact will be to create a model of sustainable private sector-led
development which can be replicated across the country. Specifically, AgDevCo estimates
that the schemes will have the following impacts in the long-term over a period of 20 – 25
years:
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-
Food Security: 50,000 Metric Tonnes of additional grain production annually, worth in
excess of £30 million;
Income Benefits: £6-12 million a year in income for local farmers; 300%-500% income
increase for up to 4,500 farmers and $100-$200/year income enhancement for up to
35,000 farmers;
Economic Impact: Over £100 million in annual GDP contribution; and
Financial leverage: £60-100 million in private investment into farms and associated
businesses.
Appraisal Case
Creation of commercially
viable schemes for
investment
Direct provision of free or
subsidised inputs
Figure 1: Theory of Change
Inputs
UNPROVEN ASSUMPTION:
INFRASTRUCTURE AND
IRRIGATION WILL BE
MAINTAINED
UNPROVEN ASSUMPTION:
SUSTAINABILITY OF GAINS
LEADS TO LASTING
PRODUCTIVITY INCREASES
Better irrigation and infrastructure serving farmers
Increased
productivity of
agriculture
Increased food
security and
economic growth in
N Ghana
Increased access by farmers to agri-inputs
INVESTMENT STRUCTURE
AND INCENTIVES IN
PLACE FOR
INFRASTRUCTURE
Outputs
FARMERS AND FARMING
COMPANY SOURCE INPUTS
JOINTLY USING
INVESTMENT AND PROFITS
Outcome
Impact
Figure 2: ToC structure for option 2
Definition of
service need
Identification of
outputs
Identification of
partner
Pre-feasibility
studies
Acceptance by
GoG
Project
Development
Company
capitalised with
funds for project
development
activities
Definition and prefeasibility
2012
N Ghana's potential to achieve commercial yields of maize, rice, sorghum and soy
validated.
and market studies (soil, hydrology, irrigation system design)
ments for infrastructure assets
Equitable land access arrangements developed and supported by local community.
tion and mapping, detailed land access negotiations
negotiations
Fully costed and developed PPP structure, investment and implementation plan in place
completed (legal entities, PPP arrangements, pricing, terms)
Financial models completed
ations and select farmers
(SMC) , draft articles of association, governance
rocurement processes to select SMC, Engineering, Procurement & Construction (EPC)
contractor, Commercial Farming Company (CFC)
Agricultural
schemes in Tono
and Bamboi
deemed
commercially
viable by
investors:
 $30.7m patient
capital raised
 Contracts
signed with
management,
infrastructure
and farming
companies




- Food Security: 50,00070,000MTs (worth
$50MM+) of additional
grains and 1,000MTs of
seeds, annually
- Income Benefits: $10$20MM a year in
Land clearance
additional income for
Construction of
local farmers; 300%irrigation and
500% income increase
building
for up to 4,500 farmers
Procurement of
and $100-$200/year
equipment
income enhancement for
Beginning farming up to 35,000 farmers
initial plots
- Economic Impact: Over
$150MM in annual GDP
contribution
- Financial leverage:
$100-$150MM in private
investment into farms
and associated
businesses
Implementation
Project Development Phase
2013-2015
2016 - 2019
Ongoing production
2017-2041
A. What are the feasible options that address the need set out in the Strategic case?
Theory of change
The desired overall impact is to increase food security and economic growth in the North of
Ghana. The outcome that will contribute to this is increased productivity in agriculture in the
North. As set out above in the strategic case, there is good evidence that growth in
agriculture will have a disproportionately high impact on reducing poverty in the North, and
there is room to expand both the scope and intensity of agriculture. However, many
initiatives to boost agriculture have been carried out, or are already running, which have not
been able to demonstrate a lasting impact. Research has suggested that this is because
they are heavily input-based, and that when the provision of inputs ceases, producers are
unable or unwilling to commit their own funding to such inputs, resulting in falling
productivity. Impact has also been damaged by poorly planned institutionalised or systemic
approaches, which have not been successful in targeting need or have suffered from poor
management.
This Business Case therefore proposes two options – option 3 focuses on large-scale, direct
inputs sourced and coordinated by the programme, in order to enable producers to escape
the poverty trap that holds them back, reducing their appetite and ability to take risk to invest
and diversify. Option 2 on the other hand proposes an innovative solution, which could serve
as a pilot and model for similar initiatives in the future. This is to demonstrate to investors
that two agricultural schemes (in Tono and Bamboi) are commercially viable. The approach
is distinctive for a number of reasons. Firstly, that it is seeking to develop two fully integrated
stand-alone irrigation schemes that can serve as models for other schemes. Secondly, that a
PPP structure would be used, ensuring commitment to success from Government, local
communities and the private sector. And thirdly, the ‘free’ input would only be required in the
initial project development phase, after which the project would be able to attract loan
financing and investment, because the commercial returns are deemed to be sufficiently
robust. Grant financing would therefore only cover the first three years of the project, at the
end of which the aim is that it will be an investable proposition.
OPTION 1 – Do nothing
The do nothing option would free up DFID resources to be spent on other interventions.
These could be elsewhere in Ghana, and could be in other areas than stimulating private
sector development. However, as the Strategic Case makes clear, there is a real imperative
to raise productivity and incomes in the North, to reduce the huge imbalance in levels of
poverty as clearly stated in DFID’s Operational Plan for Ghana. Moreover, the GoG’s
strategy for accelerating development in the northern savannah focuses very clearly on
private-sector led growthxxi. It does not dismiss other developmental needs, but after
decades of other approaches having been tried, the aim is to enable private business to
flourish and so creates jobs and raises incomes, primarily through agriculture.
The evidence from various studies and reports highlights that approaches employed thus far
in the North have resulted in conflicting market signals and created perverse incentives in
the marketsxxii. So, while some immediate gains may have been achieved, they have not
been sustained, or have risked undermining the growth potential of the region. Division of
Labour work has also identified that the North is the region of highest focus, and agriculture
one of the most strongly supported sectors by donors, although coordination has often been
weak. Thus the three northerly regions (Upper West, Upper East and Northern) have
attracted an average of 18 development partners each, compared to an average of less than
10 for the other regions. Agriculture attracted approximately $240 million over 2012-2016,
second only to transport among sectoral fields, with four donors contributing $25 million or
more over the five years.
It could therefore be argued that, while there is undoubtedly much greater poverty and much
reduced ability to escape it in the North, donor attention is already focused on the problem
areas and furthermore, that its impact is mitigated. The comparative advantage for DFID
would therefore be to focus on more neglected areas, and those with a greater chance of
success. However, there is currently no funding for the more innovative approach set out in
option 2, which could be a catalytic initiative in improving the way support for agriculture is
designed. The studies suggest that previous failure is because support to market actors in
the North by both GoG and donors has tended to focus on providing ad hoc, direct support to
producers, without a clear strategy for sustaining economic activity. The in-built sustainability
and replicability of option 2 would enable DFID, for a relatively small amount of support, to
have a transformative effect.
Further, although donor attention is high, this is because addressing poverty in the North is a
strong priority for both GoG and the donor community. The proposed programme is
complementary to other DFID programming in the North, including proposed support to
SADA and the Millennium Villages project. It can strengthen SADA’s role and signal a shift in
approach to development in the North towards bolstering private-sector led growth. DFID
has already invested resources in framing the SADA strategy and establishing the institution,
and support for a tangible market development programme will underpin results from this ongoing intervention.
Option 2 - AgDevCo PPP farming schemes
This option works with AgDevCo to address the problem of low incomes and food security in
two areas in Northern Ghana. AgDevCo is a not-for-profit agricultural development
organisation that invests "social venture capital" to create commercially viable agribusiness
investment opportunities, bringing them to the point where they can attract private
investmentxxiii. It has conducted pre-feasibility work on two irrigation schemes in the north of
Ghana, located in Bamboi and in Tono. These schemes will involve the local production,
largely of rice and maize, through innovative public-private partnership arrangements. This
will involve bringing together commercial farming companies, government and local
communities at these sites to provide affordable but well-managed irrigation, improved
market linkages and input supplies, and processing and mechanisation to directly support
local farmers. The model combines commercial and smallholder farming within one ‘block’,
with three tiers: large-scale mechanised commercial farming; ‘emergent’ farming on plots of
10 to 15 hectares employing substantial irrigation; and smallholder farming on plots of 1 or 2
hectares using basic irrigation.
The Bamboi scheme (in the Northern Region) will create a greenfield irrigated rice farm of
4,000 hectares to be developed, constructed and operated as a multi-stakeholder publicprivate partnership. This will involve a commercial farming nucleus of 2,000 to 2,500
hectares; 100 ‘emergent’ farmers on 5 to 15 hectare plots; and 500 smallholder farmers. The
smallholder farmers will have direct access to improved seeds, extension, machinery,
storage, and marketing services. Areas that are not suitable for rice cultivation will be
adapted where possible for growing maize, soya, sugar beans, groundnuts, cassava, as well
as bananas and potentially other tree crops to provide supplemental income opportunities for
members of the local community. The presence of this large rice production facility will also
benefit around 6,000 farmers in the surrounding area who are not part of the scheme, with
improved access to inputs, processing and storage, as well as growing expertise. The
availability of substantially improved seeds from the scheme will increase the amount that
can be produced by (an estimated 10,000) surrounding farmers. The nucleus commercial
farm will include a rice mill, designed with excess capacity to process up to 8,000 tonnes of
paddy rice from the local area.
The Tono scheme (in the Upper East Region) involves the private sector rehabilitating and
expanding an existing dilapidated public irrigation scheme, in order to improve yields and
incomes initially for 500 smallholder and 85 ‘emergent’ farmers. This is a pilot phase that
could potentially be expanded to include a far larger number of local smallholder farmers. A
new nucleus commercial farm and rice mill will provide – in addition to irrigation – inputs,
equipment and technical advice to local farmers, as well as offering to buy their product, at
fair prices. The scheme will be capable of producing 10,000 tonnes of high quality rice, 5,000
tonnes of maize, and 1,000 tonnes of soya. The nucleus farm will produce high quality
seeds, with a substantial surplus that can be sold into local markets, providing significantly
improved seeds for up to 10,000 additional smallholder farmers. Around 12,500 farmers in
the surrounding area – which is more densely populated than at Bamboi – will benefit from
improved access to inputs, processing, storage, and expertise.
AgDevCo has completed the project concept stage for these schemes, including initial land
surveys, and the pre-feasibility investment plans and PPP arrangements. The detailed
documentation on these schemes is provided in Annex 1, and feeds into the economic
appraisal below. The next stage for these schemes is project development, which will cost
around £3.7 million for the two schemes, to take them to a point where external investors
can be sought, with the aim of leveraging an additional £45 million of public and private
capital. DFID will provide upfront grant funding for project development, after which private
investment is expected to finance project implementation. £2.4 million is being sought from
DFID for this initial financing, with AgDevCo also contributing around £1.3 million upfront.
AgDevCo’s contribution will be recouped at a later point, along with a 10% per annum
premium, upon successful project completion.
The schemes over their whole lifetime would aim to produce significant development
outcomes:




Food Security: 50,000-70,000MTs (worth $50MM+) of additional grains and
1,000MTs of seeds, annually
Income Benefits: $10-$20MM a year in additional income for local farmers; 300%500% income increase for up to 4,500 farmers and $100-$200/year income
enhancement for up to 35,000 farmers
Economic Impact: Over $150MM in annual GDP contribution
Financial leverage: $100-$150MM in private investment into farms and associated
businesses
As these would be over a 25 year period, whereas the project period is three years, the
outcome attributed to the project, which would be measurable at its completion, would
necessarily be process focused. The project will also finish before the ‘hard’ inputs are
provided, such as land clearance, the procurement of equipment, the construction of the
irrigation schemes and the erection of buildings. It is these that will directly enable production
to increase to deliver the longer term development outcomes. They will though not be
possible without the preparatory work carried out under the grant-financed project
development phase, which is proposed by this Business Case. Thus, for the purpose of the
logframe, the outcome would be:
Agricultural schemes in Tono and Bamboi deemed commercially viable by investors, as
demonstrated by:
 $30.7m patient capital raised
 Contracts signed with management, infrastructure and farming companies
 Environmental assessment carried out during the second year of the programme.
This is the most directly measurable indicator of success of the project – that it is ready for
investment. The commercial investment in itself is the most promising indicator of
sustainability, as the network of investors will have committed funds and contracted to
engage in the project. The outputs would therefore be atypical for a DFID project, as they
focus on the upstream process by which sustainability of investment and management is
achieved. The logframe would therefore address this level, rather than the end outcome and
impact (see figure 1), which are outside of the period to be addressed. This is expressed in
figure 2.
OPTION 3 – Direct support to increase agricultural output
Under this option, the challenge identified in the Strategic Case (potentially successful
commercial agriculture is unviable due to a lack of access to the right inputs), is addressed
through direct subsidies on essential inputs such as fertiliser and seeds to improve access
and utilisation by producers.
The rationale for the subsidies on agricultural inputs is that many farmers do not have
sufficient cash or access to credit to purchase inputs, and the subsidy will help them to build
an asset base that gradually reduces their need for support. This can rapidly increase the
output of farmers who receive the subsidies, while the ‘schemes’ will provide more
concentrated but longer-term boosts to output.
Where farmer density is low, as across much of northern Ghana, the potential demand for
agricultural inputs may not be sufficient to enable agro-dealers to cover their set-up costsxxiv.
High transport costs to serve remote areas render farm-gate crop prices too low, and costs
of the inputs too high, to make their supply profitable. In such cases, input subsidies can
boost demand and encourage input suppliers to expand their presence to remote areas.
Once the market infrastructure has been developed and markets are functioning, subsidies
can be withdrawn.
Under Option 3, DFID would intervene directly to increase productivity of farming in the
North. The programme would provide a 50% subsidy for the purchase of chemical fertilizer
and improved seed to producers in selected areas. There is an existing fertilizer subsidy
scheme administered by the government that covers around 43% of the cost. xxv However,
many farmers do not benefit from the government subsidy scheme. This is because
suppliers often do not want to administer the scheme, which requires them to claim back the
value of the subsidy from GoG (which has a poor reputation for making timely payments to
its local creditors). The GoG scheme is also limited in range, and often fails to reach remote
areas. This intervention would therefore target producers in areas where they are not
benefitting from the GoG subsidy – this targeting, and avoiding any double provision of
subsidy, would require intensive management and monitoring.
The cost projection for reaching 60,000 farmers by the end of the programme is £17.5
million, including implementation costs of 15% of the total subsidies provided, and 15%
management costs to administer the programme. Producers to benefit will initially be those
producing the three primary crops identified (maize, rice and soya bean), with the choice of
areas based on criteria that will balance capacity to take advantage of support and with
ability to reach marginalised producers. The aim of the intervention is to improve access to
and adoption of critical agricultural inputs to boost production, increase incomes and bolster
food security.
The input subsidy package will be provided through an input voucher system. Each voucher
will have a face value of approximately half the cost of the input, as determined by the
programme implementer before the start of the planting season. The vouchers can be
redeemed with agro-dealers certified under the programme, who then submit the vouchers to
the programme implementer to be reimbursed for the face value of the voucher plus a
handling charge. So the voucher represents an income transfer to the farmer. For the input
suppliers, the vouchers are a way to ensure demand (and a profit margin) for the inputs they
supply, potentially enabling them to capture economies of scale in their business, reducing
some of their risk, and contributing to setting their business on a sound financial footing.
The programme will also provide extension and management training to producers to
facilitate effective use of inputs, and will assist with the formation of farmer-based
organisations for ease of service delivery and to strengthen their negotiation and bargaining
power. It will establish demonstration farms to introduce farmers to the benefits of adopting
improved practices, including planting certified seeds in rows at recommended plant
population densities, with adequate weed control, soil tests and application of appropriate
fertiliser, and improved post-harvest processes. The programme is expected to contract up
to 75 extension officers over its lifetime at an extension staff to farmer ratio of 1:800 (Ministry
of Food and Agriculture ratio is 1:1,500; other programmes average a ratio of 1:200). The
programme will also provide direct support to buyers and marketers to provide post-harvest
services and market access to producers in the programme. The fundamental features of
Option 3 are summarised in Figure 3.
Figure 3: Summary Outputs, Activities and Results of Option 3
Outputs


Improvements in
inputs for small-scale
producers
Market interaction
and exchange is
enhanced and is
efficient and
effective.
Activities
 Provision of inputs and package of
services to small-scale producers
through the input voucher scheme.
 Provision of capacity development
(training and demonstration) for
small-scale producers who access
the voucher scheme.
 Beneficiaries linked to aggregators
and marketing companies or
farmer-based organisations.
Results
60,000 small-scale
producers increase
productivity through
access to inputs and
capacity building
This moves away from a market systems approach, providing direct, targeted support to
increase productivity and to improve links with market actors. This approach is premised on
the view that producer capacity in the region is particularly weak and there is inadequate
scale in a given area to stimulate sustainable provision of inputs and services. Market
systems therefore do not stimulate sufficient demand for inputs to warrant investment in
supplying inputs, and adoption by producers of inputs remains low. The theory of change is
that providing direct support to producers will directly address their low capacity and limited
access to inputs and enable them respond to the market effectively. This will stimulate
economic activity in the region, which could then open up increased market activity in
provision of services and purchase of outputs.
It is not possible to target large numbers of producers as this option will involve identification
of producers and providing them with direct training support. Experience suggests that this
relatively intensive approach is necessary to ensure that the additional resources are utilised
correctly and that productivity gains are achieved.
B. Assessing the strength of the evidence base for each feasible option
In the table below the quality of evidence for each option is rated as either Strong, Medium or Limited
Option
1
2
3
Evidence rating
Limited
Medium
Limited
A range of evidence suggests the poverty-reducing impact of agricultural growth is between
2.5 and four times that of other sectorsxxvi. While this falls as countries become richer,
Ghana shares characteristics similar to lower income countries in this respect, and therefore
the impact of agricultural growth is likely to be strongxxvii.
Evidence for Option 2
The AgDevCo approach is being implemented in Mozambique and Tanzania, and has
including investments to produce improved and locally-adapted seed varieties, and
commercial outgrower schemes for the production and marketing of chickens, various fruits
and vegetables, and brewery inputs.xxviii The approach has been shown to be workable,
investing "social venture capital" to create commercially viable agribusiness investment
opportunities.
While AgDevCo itself has not been established long enough to bring any of its full-scale
interventions to conclusion, a successful $2.5 million pilot was conducted in Zambia that
increased yields and enabled crop diversification for 60 hectares of smallholder farmingxxix.
Now in its fourth growing season, it has been used by the World Bank Group as a model for
the design of its own irrigation project, as well as for the Bank’s Ghana Commercial
Agricultural Project.
A research paper from the World Bank on Commercial Value Chains in Zambian
Agriculture14 concluded that smallholders are among the major beneficiaries of commercial
value chains and targeted investments can help to support the strategy for equitable growth
and agricultural diversification. In particular the paper concludes that1:

“Smallholders – contrary to common perception – benefit considerably from
increased participation in value chains…The nonmonetary benefits that
smallholders gain from value chains are critical, not only for the success of the
value chains but for maintaining farmers’ knowledge and skills .”
1 World Bank, Report No: 48774-ZM, “ZAMBIA COMMERCIAL VALUE CHAINS IN ZAMBIAN AGRICULTURE:
DO SMALLHOLDERS BENEFIT?”, June 2009

“Targeted public investments in developing value chains and outgrower
schemes would greatly support the government’s strategy for equitable growth
agricultural diversification through smallholders’ greater participation in
commercial agriculture.”
A paper on the All-Africa Review of Experiences with Commercial Agriculture15 showed that
although many of CDC’s investments did not make a commercial return (the paper highlights
that such an expectation would be unfair to being with), about 50% were “technically
successful” and proved sustainable. The paper notes that:

and

“Many of the smallholder schemes were successful in raising production and farm
incomes, but contributed to the growing crisis in the public finances of many African
countries.”
“It was not surprising that many aspects of agricultural development required subsidy.
In many parts of the world the basic infrastructure for agriculture development was,
and is still, provided either free of charge or at sub-economic costs by governments.
This includes road and other transport systems, irrigation and drainage networks,
agricultural research and extension services.”
The legacy of CDC irrigation schemes initiated in the 70s/80s can be seen in the fact that
they today support some of the only commercial farming operations in SSA (e.g. Mpongwe in
Zambia, tea estates in Kenya and Tanzania, sugar in Swaziland).
The Morocco Guerdane irrigation project provides an example of the world’s first publicprivate partnership irrigation project. The transaction was structured as a 30-year concession
to build, co-finance, and manage an irrigation network to channel water from the dam
complex and distribute it to farmers in Guerdane. Post tender results include;
 Safeguarded a citrus industry that provides direct and indirect jobs for an estimated
100,000 people.
 Government benefited from technology transfer financed by the private sector.
 Provided a model for similar public-private partnership irrigation projects, such as the
one for farmers in the Nile Delta region.
Evidence for Option 3
Utilisation of agricultural inputs in Sub-Saharan Africa is believed to be low partly
because of market failures that distort input markets and discourage farmers from using
them. Key market failures are credit constraints, imperfect competition, lack of information
and coping with the risk of crop failure (Dorward, 2009). Input subsidies may be efficient if
they counteract market failures, and inefficient if they do not. Input subsidies are most likely
to be a good option when farmers are not familiar with the benefits of inputs, when there is
demonstrated profitability and low adoption, when the subsidies can be accurately targeted
to the poor, and when the input distribution network is dense enough to allow an input
voucher system to workxxx.
2.
Key agriculture input subsidy programmes implemented in Africa are the Malawi
Agriculture Input Support Programme (AISP), the Zambia Fertiliser Support Programme
(ZFSP), the Ghana Fertiliser Subsidy Programme (GFSP) and the Tanzania National
3.
Agricultural Input Voucher Scheme (NAIVS)xxxi. The Malawi programme has received a great
deal of attention as an example of a successful input subsidy programme. It is massive in
scale, targeting is based on a voucher system, and delivery of inputs to farmers is largely
state-managed. The large-scale programme in Zambia provides an example of an alternative
non-voucher targeting system and features state-driven delivery. The Ghana case
demonstrates a relatively small programme with a market oriented delivery system, and the
Tanzania case provides insights into targeting performance of a voucher scheme.
It seems that where fertiliser subsidies are implemented, input vouchers are a
preferable optionxxxii. Input vouchers help build the private-sector distribution network by
requiring that farmers take their vouchers to private dealers to exchange for inputs. Voucher
programmes also provide an opportunity to train farmers and input suppliers in efficient,
profitable use of inputs. However, administrative costs of input voucher systems can be
high, particularly if they are targeted. Vouchers may leak out of the target group if the
intended beneficiaries resell the vouchers to others, and although the targeted group
benefits from the cash income, leakage defeats the goal of boosting their agricultural
productivity. The use of vouchers to acquire fertiliser may displace some purchases of
fertiliser that the voucher recipient would otherwise have made with their own resources,
undermining efforts to develop a sustainable market-driven input supply system. Farmers
must also live close enough to an input supplier to make the transaction worthwhile – this
can be problematic in sparsely populated areas such as northern Ghana.
4.
A review of key lessons learned where input vouchers have been implemented shows
that significant increases in agricultural productivity and food production are possible.xxxiii
However, the high costs and uncertain outcomes call into question the value for money of
such programmes. According to the review there is a lack of evidence that outcomes persist
after termination of the programmes; subsidy programmes are designed to overcome
problems created by market imperfections rather than to tackle the persistent market
imperfections themselves.
5.
Subsidy design involves trade-offs between efficiency, equity and sustainability. If the
subsidy varies with input prices (as in the programmes in Malawi and Zambia), poor farmers
are partly or completely shielded from high prices, but economic returns from the programme
can become highly variable and are likely to be negative when input prices are high. High
input prices threaten the financial sustainability of the programme. They also threaten the
sustainability of impact, since subsidised demand reduces the incentive for suppliers to
become more efficient and keep input prices down, which would improve the chances of
increased input utilisation when the programme ends. On the other hand, if the subsidy is
fixed in percentage terms (as in Ghana and Tanzania), farmers share a part of the burden of
higher input prices, which can exclude the poorest farmers and cause disruptions in the
functioning of input markets.
6.
There is a trade-off between efficiency and equity in input delivery. Efficiency can be
enhanced by utilising the existing private input supply network but this may come at the cost
of coverage, effectively excluding remote areas where markets are thin and private agrodealers are largely absent. Most of the programmes reviewed experienced serious delays
and uncertainty in the delivery of inputs to farmers, mainly due to administrative challenges.
Delays have severe consequences for programme efficiency and sustainability - postponing
application of inputs diminishes yields directly, and uncertainties about input subsidy
entitlements may cause farmers to reduce commercial purchases.
7.
Where input subsidies are provided, credible exit strategies need to be determined.
Rigorous impact evaluations of input voucher schemes are needed to determine whether the
8.
value of additional crop production resulting from the subsidy exceeds the full cost of the
programme, and whether benefits can be sustained. Such an evaluation is included in the
costs structure for this option.
What is the likely impact (positive and negative) on climate change and
environment for each feasible option?
Option
1. Do Nothing
2. AgDevCo PublicPrivate Investment
Irrigation Schemes
3. Input voucher
scheme
Climate change and
environment risks
B – manageable risk
Climate change and environment
opportunities
C – low opportunity
B – manageable potential risk
A – high opportunity
B – manageable potential risk
B – medium opportunity
Vulnerability to changing weather and climate in the north of Ghana is playing out in many
ways, paticularly for the agricultural systems in the North, imposing increased burdens on
women and children in particular, and interacting with poverty and depletion of assets.
Option 1, to do nothing, does not address the increasing risk that climate change poses to
communities and agricultural systems in the North, through increased incidence of extreme
events such as droughts and floods and contraction of growing seasons for rainfed
agriculture. Option 1 is therefore categorised as a manageable risk Option 2 provides a
significant opportunity to increase the resilience of communities and agricultural systems to
climate change impacts, with manageable risks. Providing more assured income-earning
opportunities and diversifying livelihoods, for instance through improved agricultural support
services and through irrigation, will assist poor rural communities to cope with shocks
associated with climate change. Management of the risks posed by climate change – for
example by providing irrigation and weather services – will reduce the disincentive to private
sector investment posed by these risks. There are also opportunities to encourage climate
smart agricultural practices and technologies that increase resilience and reduce emissions,
and to contribute to the evidence base and lesson learning on these approaches.
The main risk is that climate change will undermine the commercial viability and
sustainability of the agricultural schemes, for example through impacts on growing conditions
and increasing intensity and frequency of extreme events such as floods and droughts. To
manage this risk climate change and not just current climatic conditions must specifically be
addressed. Another major risk is that climate change may impact the future availability of
water resource supplies used to operate irrigation systems and if this dynamic risk is not
accounted for then irrigation could actually increase the vulnerability of agriculture and
communities to climate change and water shortages in the longer term (so called
‘maladaptation). Risks also arise from intensive use of the land and of inputs, damage to
infrastructure (including irrigation) from flooding and other hazards and ever increased
reliance on agriculture that is susceptible to the flooding and droughts that are set to
increase with climate change. There is a sizeable opportunity in improving the predictability
and manageability of the water supply through irrigation as opposed to the current rain-fed
provision, which is vulnerable to climate-change induced changes (this is more of an issue in
the North of Ghana, where the schemes are located).
Option 3, an input subsidy scheme, has manageable risk to climate change and the
environment, but the opportunities are less. Subsidised inputs provide a specific and
relatively short-lived solution to problems underpinning low agricultural productivity. The
solution is therefore relatively short-lived, making inputs artificially cheap which can
encourage their inefficient use, without putting in place sustainable solutions to improve
resource utilisation and allocation. This option does not address the problem of access to
water, and therefore provides a low level of opportunity.
Environmental sustainability (i.e. sustainable water resources, lack of relocation) has been a
key criterion in the choice of the specific locations for the PPPs. Prefeasibility level analysis
has highlighted no significant environmental issues. However, carrying out an Environmental
Impact Assessment and Resettlement Action Plan is a critical component of the intervention.
A full climate and environment impact assessment will be carried out as part of this project,
that will assess the risks and opportunities outlined in the CEA (Annex A) and will include
measures to be addressed as the scheme is implemented by partners. These measures will
be criteria for the commercial farms that are chosen to implement the schemes in the
following stage. DFID will review the technical quality of this assessment at annual
review/project completion. In each case, the development plans include a 9-12 month period
for detailed environmental sustainability evaluations. Around £500,000 has been budgeted
for these studies. The fact that this proposal is for upstream preparation of a feasible project
means that the bulk of the environmental assessment work for the preparation of the
schemes will take place over the life-cycle of the project, and will be an output of it.
C. What are the costs and benefits of each feasible option?
Option 2
The AgDevCo programme, which proposes the development of two PPPs (Bamboi and
Tono), is estimated to cost a total of approximately £3.75m over a three year period. The
amount is expected to cover project development costs for the two PPP projects, including
feasibility studies and an Environmental and Social Impact Assessment study. DFID’s
contribution would be approximately 67% (£2.47m) of total project development costs and
should leverage £24 million of non-commercial funding during the subsequent four years of
implementation.
The present value of the total project development costs would be equivalent to £2.75 million
at a 10% discount rate. Other costs to be considered in the appraisal are the costs of
implementation, excluding direct investments by the commercial farm companies. These are
primarily for investment in major irrigation infrastructure. The full appraisal period is 28 years
including three years initial set-up, four years of implementation (when benefits start but at a
low level), and 21 years of recurrent costs and incomes. The present value of the
implementation costs amounts to £15.2 million bringing the present value of total costs
considered for the appraisal to £17.95 million.
The programme is expected to deliver a varied set of returnsxxxiv, including: direct incomes to
smallholder and ‘emergent’ farmers deriving from increased yields; irrigation to the wider
community for small vegetable plots; employment in the central large-scale commercial farm;
wide availability and lower cost of agricultural inputs that are purchased in bulk; wide access
to quality processing, storage and marketing services at fair prices; demonstration of
improved methods and technologies; payments by the commercial farm to the community for
use of their land; and local availability of much-improved seeds.
The benefit estimation for the AgDevCo schemes includes the net return to farmers as a
result of the schemes. It excludes the returns (the income, the investment and running costs)
of the central large-scale commercial farm, which is a profit-making private enterprise that
invests in the key infrastructure and provides the access to various improved facilities and
services. The increased margins for smallholders, from increased yields and enabling two
harvests per season, are estimated to be around £1,100 per farmer each year, of which
around 50% is used to cover operating expenses. The ‘emergent’ farmers, with plots of 1015 hectares, are expected to achieve slightly higher returns per hectare due to the increased
scale of operation. Direct beneficiaries of the project include 185 ‘emergent’ farmers across
the two schemes, and 1,000 smallholder farmers. Total direct benefits to these farmers level
out at around £2 million per year after the fifth year of implementation. Beyond the pilot
phase, another 4,400 farmers are expected to benefit directly. These have not been included
in the CBA calculation.
The less-densely populated Bamboi scheme is expected to provide wider benefits in terms of
access to inputs and services to 6,000 surrounding farmers, compared to the Tono scheme
that should reach 12,500. The benefits of this access are estimated at £96 per farmer each
year (from year 8, after full implementation) in Bamboi, with its focus on high-return rice
production, and £38 in Tono with more reliance on maize. Surrounding farmers will also
benefit from the provision of high-quality seed, which can substantially increase yields. This
is expected to benefit 10,000 surrounding farmers in each scheme (although, again, not until
the 8th year of the project), increasing incomes by £76 for each farmer each year.
Finally, the large-scale commercial farm makes payments to the local community for the use
of land which is otherwise not generating economic returns. In Tono, where the pilot scheme
covers 750 hectares, this amounts to £0.2 million per year by the seventh year after
implementation. In Bamboi, which covers 4,000 hectares, it is nearly £1 million per year.
The present value of the benefits as outlined above – including direct and wider benefits and
payments to communities – is estimated at £37.3 million. The benefits start to flow from year
4 when implementation begins and continue through to year 28.
The present value of the benefits for the two proposed AgDevCo programmes would exceed
the present value of the costs by £19.35 million. This represents a benefit-cost ratio (BCR) of
2.05, an indicator of significant overall value for money for the project.
DFID’s investment is 8.7% of both the project development costs and non-commercial
capital expenditures. DFID can therefore claim this share of the benefit stream. In present
value terms the DFID share of the benefits is £3.24 million. When compared against the
present value of the DFID financing of £1.8m, the BCR is 1.2. This is lower than the overall
AgDevCo programme BCR because DFID financing is all provided up-front, and is compared
with benefits that start to accrue a number of years later and so are heavily discounted back
to present value terms. Nonetheless, a BCR of 1.20 suggests a fair return (in present value
terms) of £1.20 on every £1.00 invested. The rate of return to DFID financing is 14.8%. For
the same reasons, this is less than the rate of return for the non-commercial capital for the
AgDevco programme as a whole (of 19.1%). However, as AgDevCo argue, without this initial
grant, the schemes would simply not be viablexxxv. Moreover, the benefits are measured
purely in terms of yields and incomes, ignoring knock-on benefits for poor people such as
food security, ability to build up assets, and improved health. The estimation of benefits also
ignores the economic impacts of having a well-designed and well-appraised project to seek
implementation finance. DFID will mainly finance the project development costs of the two
PPP schemes which would enhance the probability of success for attracting implementation
finance.
The risks associated with such PPP projects include failure to raise financing for the needed
public investment for project take-off and contingencies that are not identified during project
development and which could lead to contract re-negotiations. These could either delay
project onset or cut short the flow of benefits. The AgDevCo schemes predict a benefit
schedule over a relatively long, 28-year period (with full benefits not accruing until the 8 th
year). A sensitivity analysis conducted on the results show that the project would break-even
if the flow of benefits were reduced from 28 years to 15 years.
The cost of DFID investing in the AgDevCo projects is clearly justified by the benefits it reaps
both in the short and long-term. In the short term there is assurance of a well-developed
project that clearly and appropriately allocates risk among project partners and stakeholders,
helps to lock in much-needed public investment, and focusses on value-for-money. In the
long term, as analysed above, there are substantial benefits to poor and vulnerable farmers,
vulnerable communities and to the wider public. Societal welfare would have increased.
Costs and Benefits of Option 3
This option focuses on achieving the outcome of this intervention through an intensive
agricultural input voucher scheme, whereby producers are provided with subsidised inputs
over a three year period through existing market supply mechanisms (as outlined above).
The cost projection for the voucher scheme is £9.1 million, to provide up to 60,000 producers
with a package of inputs costing £92 per hectarexxxvi, and capacity building at a cost of £29
per producerxxxvii. The cost of the package of inputs represents 50% of the estimated total
cost of the inputs required, since the programme is designed to provide a 50% subsidy
rather than free provision, in order to maintain functioning markets. There is not an existing
programme to build on, and distribution of vouchers and provision of capacity support are
expected to start immediately (with 5% outreach in year one, additional 20% in year 2, and
25% in year 3). Initial set-up costs are estimated at £800,000, with ongoing implementation
costs adding 20% to the direct costs of providing the vouchers and support, and programme
management costs of 15% of the direct costs.
Benefits of the voucher scheme are calculated from the increased productivity that is
expected to be achieved. This is spread across the three product sectors (maize, rice and
soya) according to their relative share of agricultural production in the North xxxviii. It is
assumed that each producer will benefit from the package of support only once during the
programme lifetime, which could reflect a shift in geographical focus each year. The benefits
of the package of inputs (taken to contribute 90% of the increase in productivity) are only
accrued for the year they are used. The benefits of improved capacity (contributing 10% of
the increase in productivity) are assumed to continue also into the subsequent year. The
appraisal period is therefore the three years of implementation plus an additional fourth year
of benefits from capacity building.
Productivity increases from the intervention are estimated to be 200% for maize, 150% for
rice and 130% for soyaxxxix. These are clearly fundamental to estimating the benefits of this
option and alternative estimates are considered in the sensitivity analysis. Evidence from
other distribution schemes suggests that not all of the direct spending results in utilisation of
the inputs, and that an allowance should be made for losses, waste and possible
misappropriation; an allowance is applied here of 10% for such lossesxl. This 10%
downward-adjustment in the benefits also effectively incorporates the reality that, even with
access to increased inputs, some producers will not be successful in increasing their
productivity, for a variety of reasons.
The central estimate of the NPV of this component, at a 10% rate of discount, is £1.2 million.
Due to the rapid (albeit short-lived) nature of the benefits, the rate of return on this
component is estimated to be 116%, with a BCR of 1.17.
Option 3 is sensitive to the cost of the package of input support, with the subsidy voucher
component just breaking even (present value benefits equal costs) when the cost increases
by 28% from $92 to $118 per hectare (and the overall programme then registers a benefitcost-ratio of 1.04). This option is also very sensitive to the estimated productivity increase
achieved in each sector. If it is one quarter as much again (e.g. 200% increase in maize
productivity becomes a 250% increase), the programme’s BCR increases substantially, from
1.19 to 1.59. However, just an 8% reduction in the estimated productivity gain (e.g. 200%
increase in maize productivity becomes 186%) shifts the subsidy voucher component below
breakeven, and the programme as a whole to a BCR of 1.03. The central estimates of
productivity increases that feed into the appraisal are considered realistic and achievable,
and the best estimates available.
Preferred Option
Weighed against a do-nothing option, options 2 and 3 both present better value for money.
Comparing option 2 and 3, option 2 is the preferred option. The rate of return of option 3 is
much higher than option 2, due to effect of discounting to present values in comparing very
short-lived benefits from the inputs scheme against considerably more long-lived benefits
from the AgDevCo investmentxli. However, the overall ratio of benefits to costs (the BCR) is
higher for option 2 (at 1.20) than for option 3 (at 1.17). Option 2 utilises an initial £2.47m of
DFID financing to catalyse more sustainable private investment, of up to £40 million, with
longer-term benefits for the farmers and the local communities. Economic theory and
practice suggest that the key determinant of growth is investment. In general terms, the
higher the volume/value of investment, the higher the growth rate.
The strength of evidence is also stronger for option 2, the AgDevCo programme. Moreover,
according to World Bank studies, private financing – which underpins the AgDevCo
programme – improves the delivery of services and enables more efficient use of resources
by improving the identification of long-term risks and their allocation.
D. What measures can be used to assess Value for Money for the intervention?
The importance and advantage of a PPP farming scheme are that it achieves VFM through
mobilising private capital, improving the delivery of services and the operation of
infrastructure, and enabling more efficient use of resources. VfM for this intervention will be
assessed using the following measures:
a) Amount of additional financing mobilised from private investors for the markets being
facilitated;
b) Successful negotiation of concessional financing for public investment;
c) Allocation and acceptance of risks in the final PPP arrangement documents;
d) Ability of institutional set-up to drive down project development costs.
Economy: Project management and institutional set-up is estimated at 22% of total costs of
the project development scheme. AgDevCo will be seeking to make savings during
negotiations for project development financing. In addition, savings will be sought from costs
that are within the control of AgDevCo such as through commercial tender process for the
various planned studies, where costs can be negotiated and kept down.
Efficiency of programme inputs converted into outputs. The public and private investment
leveraged by the AgDevCo scheme should be substantial, predicted to be £17.8 million and
£21.9 million respectively. A review process is outlined in the management and commercial
cases, which will assess trends in efficiencyxlii and make recommendations for
implementation to improve VfM.
Cost Effectiveness: During the period of programme implementation. The AgDevCo
schemes aim to provide significant benefits, primarily in terms of increased yields, for around
24,000 producers. The full scale of benefits will not be achieved until seven years after
funding starts – with three years of intensive project preparation and four years of
implementation including construction of infrastructure – but the benefits are projected to last
for 20 years beyond that. Other results not in the log frame include the impact of economic
growth on broader improvements in livelihoods for northern communities xliii.
Commercial Case
Indirect procurement
A. Why is the proposed funding mechanism/form of arrangement the right one for this
intervention, with this development partner?
The programme will be managed directly by DFID as an Accountable Grant to AgDevCo
based on a proposal submitted to DFID.
As a primary project developer funded by some of the world’s most respected private and
public development organisations, AgDevCo is well qualified to develop irrigation PPPs in
Ghana. AgDevCo is currently developing similar PPPs in Zambia and Mozambique which
partner large and small farmers on a shared irrigated farming block. Their proprietary (threetiered farming block) model is a way of efficiently sharing the costs and benefits of farming
operations between different tiers of farmers, with each charged affordable rates for irrigation
and infrastructure, and has demonstrated success at Chiansi in Zambia.
AgDevCo was specifically created, staffed and resourced to develop agricultural PPPs:
 The senior team has 150+ years of collective experience and includes experienced
project developers, commercial farming experts, private equity specialists, and
development experts.
 It has financed over 15 agribusinesses and projects in Mozambique, Zambia and
Tanzania.
AgDevCo’s interests will be aligned with both GoG and DFID, as it is a not-for-profit
organisation whose mission is to ensure projects deliver sustainable benefits for local
communities. It is also directly incentivised to ensure that the programme is completed and
implemented – it will commit $2 million of its own funds as risk capital in the projects, to be
recovered only upon successful completion of the development phase of the project, which
would include signed commitment for the patient capital required to deliver the infrastructure
components.
B. Value for money through procurement
All procurement for this intervention will be carried out as Third Party procurement by
AgDevCo. AgDevCo will procure over 80% of goods and services through the UK HQ, in
order to maximise central control over systems and costs. AgDevCo adheres to EU
procurement rules for all transactions. It has also adopted the procurement policy of the
PIDG (Private Infrastructure Development Group).
AgDevCo carries out substantial due diligence on suppliers (eg EIA and technical surveying
partners), and it is AgDevCo policy to build the capacity of the organisations in which it
invests, in order to strengthen their procurement practices. Programme directors are
responsible for all in-country procurement, and have final sign-off for spend above $1,000.
The senior management team discusses all contracts above $10,000, and the Board is
consulted on all contracts above $250,000. An incentive structure is built into contracts
where possible, and central templates are used. No concerns have been identified regarding
the robustness AgDevCo’s procurement systems.
Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting?
The cost of the programme is £2.47 million for DFID and £1.28 million for AgDevCo. The
total is profiled over three years, according to the table below:
DFID will require quarterly financial and narrative reporting. As funds will be paid quarterly in
advance, on receipt of financial reports for the previous quarter and forecasts for the next,
DFID will keep a tight control over disbursement and forecasted spend.
DFID will also operate a budget of £150,000 over the three year period to cater for the costs
incurred for external reviews during and at the end of the project.
The major cost drivers for the project are as follows:
Description
Project
management
Legal work
Environmental
studies
Technical studies
Cropping trials
Contingency
Party
AgDevCo
Amount
£0.67m
% of total project
17.9%
Consultancy/AgDevCo £0.75m
Consultancy
£0.54m
20%
14.4%
Consultancy
AgDevCo
-
18.4%
4.8%
9.1%
£0.69m
£0.18m
£0.34m
All expenditure falls within delegated approval limits for the Growth and Northern
Development Team Leader.
B. How will it be funded: capital/programme/admin?
The project will be funded through programme funding from DFID’s bilateral programme to
Ghana. The project will not generate any liabilities.
C. How will funds be paid out?
Disbursements to AgDevCo will be paid quarterly in advance, subject to DFID acceptance of
a projected expenditure statement and, after the first payment, detailed quarterly statements
of expenditure and updates on progress to date.
D. What is the assessment of financial risk and fraud?
An independent due diligence review of AgDevCo will be conducted prior to first
disbursement. This will assess the integrity of AgDevCo’s operations including ability to
manage the funding, procurement capability, Governance assessment, programmatic ability
and financial competence. The Accountable Grant will state that DFID funding is dependent
on a satisfactory assessment, and confidence that any issues raised will be acted on
promptly.
E. How will expenditure be monitored, reported, and accounted for?
Project progress will be monitored according to standard DFID internal procedures, involving
Annual Progress Reports and a final Project Completion Report. These will be based on
progress against the logframe, which will be revised during the initial 6 months of project
implementation – as baselines are established – and may be amended during the course of
the project. Quarterly updates on expenditure and on progress will be assessed prior to
making disbursements. DFID will consult with the SADA and the Ministry of Food and
Agriculture in assessing progress.
Quarterly unaudited financial reports will be provided to DFID. DFID will have the right to
access providers’ relevant records for the purpose of monitoring and audit. AgDevCo’s
annual audited accounts will be provided to DFID within six months of their financial year.
An independent external audit will be commissioned by DFID at the end of the programme.
Management Case
A. What are the Management Arrangements for implementing the intervention?
This project will not be co-funded by other donors. However, DFID will not provide all of the
funding – AgDevCo will provide a third from its own funds, as an incentive for success. It will
recover these funds according to the triggers agreed below, and be eligible for an incentive
payment. As this will be market-driven and directly linked to performance, it contributes directly
to the future success of the project. Both payments will be drawn only from commercial
investors (ie neither from DFID’s project development funds, nor from the patient capital to be
sought).
Capital
Tranche
Capital
invested
directly into
project
development
activities
Success fee or
incentive
payment
Realisation
Event
Financial
close
Financial
close
Source
Patient capital
raised from
public and quasipublic
sources at
financial close
Paid or
committed by
commercial
investors (CFCs)
through the
competitive
sourcing process
Amount, form
and timing
Cash payment
equal
to the nominal
amount spent (ie
without interest
or
mark-up of
investment)
Form and
amount of
success fee
should be
determined by
the
market (ie as one
of
the bid variables
in
the competitive
sourcing process
undertaken to
identify CFCs)
Rationale
By definition, Financial Close, defined as the point
where public and private investors commit
substantial amounts of capital into implementation
and construction signals the success of the Project
Development Phase. Project development funds can
be considered a ‘smart’ subsidy applied to the
extraordinary upfront costs of developing projects in
SSA and therefore a defensible use of development
financing.
AgDevCo will contractually guarantee to reinvest
100% of recovered funds directly into similar
agricultural investments in SSA or Ghana if
requested or required by DFID.
Success fees are appropriately borne by commercial
investors, rather than public capital.
Market forces should determine whether success
fee is paid as cash, securities or some form of
ongoing royalty (highly commercial or profitable
projects should result in proposed cash payments at
financial close as CFCs compete to present the
strongest possible proposals. Alternatively, less
profitable or more risky projects are likely to result
in non-cash or instalment payments).
Success fees will be for the benefit of AgDevCo as
core funding and administered by AgDevCo’s board.
DFID will fund AgDevCo UK directly. AgDevCo has set up a subsidiary in Ghana to be wholly
owned by AgDevCo UK, which will manage the project. AgDevCo will contract consultants to
carry out technical aspects of the project, including legal advice, market and technical studies
(including soil, hydrology and irrigation system design), as well as the Climate and
Environmental Impact Assessment (EIA); which will be quality assured at annual
review/project completion. Final responsibility for ensuring that the recommendations
integrated into the contracts with commercial farms are implemented will lie with the investor of
patient capital (likely to be a development finance institution). Although the scheme as a whole
involves setting up a complex PPP arrangement, this will be the outcome of the project, and
not the methodology used to deliver the DFID-funded part.
B. What are the risks and how these will be managed?
As the project is strongly focused on the process of preparing the schemes for investment,
rather than on implementation (which is the phase after that funded by DFID), the risks to
delivering the outcome are focused on the political environment, the legal and regulatory risk,
land access, environmental and social issues, coordination and financing.
Most risks identified (see Annex B risk assessment) have a low likelihood of materialising, and
robust mitigation strategies are in place.
The two risks identified as a high/medium combination of likelihood and impact focus on the
major hurdle to investment and growth in the North – land rights. The legal regime of
ownership of communal land is poorly defined, and land ownership and transfers are not well
recorded in a central agreed land registry. Land access rights therefore form a major source of
dispute and tension, which could impede the project’s ability to gain access to secure land
rights or increase the vulnerability of existing land users to displacement. To mitigate these,
AgDevCo will invest up-front in top class legal counsel to advise on land, procurement,
corporate, investment and agriculture-specific laws, to ensure the project is well prepared for
possible challenges. On the other side, it will establish a socially responsible land access and
facilitation process, and fair and equitable land leases, in order to reduce the likelihood of legal
challenge. Further, the core principle of benefit-sharing between farmers, investors and rural
communities will ensure that all parties have a stake in maintaining agreements.
C. What conditions apply (for financial aid only)?
None.
D. How will progress and results be monitored, measured and evaluated?
DFID will conduct annual reviews of the whole programme, and will carry out regular spot
checks. DFID will commission an independent process evaluation at the end of the
programme, which will feed into the Project Completion Review.
Logframe
Quest No of logframe for this intervention:
i
Ghana Living Standards Survey 5, 2008
Tackling Poverty in Northern Ghana, World Bank, March 2011
iii CAADP, Review of On-going Agricultural Development Efforts,
ii
www.caadp.net/.../CAADP%20Stocktaking%20Documents%20-%20Ghana.pdf
iv
Ghana Investment Climate Assessment, World Bank, April 2009
Ghana Living Standards Survey 5, 2008
vi Tackling Poverty in Northern Ghana, World Bank, March 2011
vii World Development Indicators, 2009
viii Tackling Poverty in Northern Ghana, World Bank, March 2011
ix Ghana Investment Climate Assessment, World Bank, April 2009
v
x
Tackling Poverty in Northern Ghana, World Bank, March 2011
NADMO 2007
xii Climate Vulnerability Monitor Report Ghana
xi
xiiiEconomics
of Adaptation to Climate Change, Ghana, World Bank
The Political Economy of Commercial Agriculture in the Accra Plains and Northern Region, David
Throup, May 2011
xv Include reference to number of hectares in less than cultivation
xvi Tackling Poverty in Northern Ghana, World Bank, March 2011
xvii IFPRI (2009)
xviii GEPC Statistics 2010
xix Country Economic Memorandum, World Bank, 2007
xx AgDevCo application for funding, July 2012
xxi The government’s Savannah Accelerated Development Authority’s strategy is “aimed at developing
a diversified and resilient economic zone in the North”. SADA (December 2010), “Strategy and
Workplan 2010-2030”. Available at: www.sadaghana.org/
xxii World Bank (2010), “Tackling Poverty in Northern Ghana”, PREM Report No. 53991-GH, 15 April.
Savannah Accelerated Development Authority (December 2010), “Strategy and Workplan 2010-2030”
[www.sadaghana.org/].
DFID (2005) “Northern Economic Growth Study, DFID inventory of Private sector and market
development projects in the North, 2010, and Ghana Ministry of Agriculture, Alliance for a Green
Revolution in Africa and Mckinsey & Company (July 2010), “Breadbasket Transformation of Ghana’s
Northern Region”: Support to market actors in the North by both Government and donors has tended
to focus on providing inputs or subsidies, lacking a robust strategy for sustaining economic activity.
Projects have focused on single-phase interventions, such as providing inputs or improving farming
practices and productivity on the supply-side or creating market linkages and providing post-harvest
support. This has resulted in many small projects with short-term, localised impact.
xxiii http://www.agdevco.com/
xxiv Fertiliser Subsidies in Africa, Are the Vouchers the Answer? IFPRI Issue Brief, July 2009
xxv For the 2012 crop season the GoG through the Ministry of Food and Agriculture has made
provision to subsidise 176,000 tonnes of granular and liquid fertilizer (costing GH¢120.3 million) and
151,000 metric tonnes of certified seed (at a cost of GH¢4.8 million). This represents a subsidy on
fertilisers at an average of 43.3% of the cost. Under the government subsidy the approved selling
price of a 50kg bag of compound fertilizer is GH¢39.00, urea is GH¢38.00, and sulphate of ammonia
is GH¢35.00. http://mofa.gov.gh/site/?p=10057
xxvi eg Ravallion and Chen, 2007; using poverty data from 82 countries including African countries for
a total of 282 periods, Christiansen and Demery (2007) show that a 1% growth in agriculture is 2.56
times more effective in reducing poverty than an equal percentage point aggregate growth in industry.
xxvii Country Economic Memorandum, World Bank, 2007
xxviii AgDevCo (June 2012), “Investment Portfolio”,
www.agdevco.com/userfiles/file/AgDevCo_Investment_Summary%20June%202012.pdf
xxix Infraco (March 2010), “Chiansi Irrigation: Patient Capital in Action”, Briefing Paper (see page 7).
Available at: www.agdevco.com/sysimages/chiansi_irrigation_brifing_paper_rpt17.pdf
xxx Fertiliser Subsidies in Africa, Are the Vouchers the Answer? IFPRI Issue Brief, July 2009
xxxi Agricultural Input Subsidies in Sub-Saharan Africa; Evaluation Study, Ministry of Foreign Affairs of
Denmark, 2011
xxxii Fertiliser Subsidies in Africa, Are the Vouchers the Answer? IFPRI Issue Brief, July 2009
xxxiii Agricultural Input Subsidies in Sub-Saharan Africa; Evaluation Study, Ministry of Foreign Affairs of
Denmark, 2011
xxxiv Infraco (March 2010), “Chiansi Irrigation: Patient Capital in Action”, Briefing Paper (see pages 910). Available at: www.agdevco.com/sysimages/chiansi_irrigation_brifing_paper_rpt17.pdf.
Potential benefits are also outlined in the AgDevCo proposal at Annex 3.
xxxv AgDevCo (March 2010), “Agricultural Growth and Poverty Reduction in Africa: The Case for
Patient Capital”, Briefing Paper. Available at:
www.agdevco.com/sysimages/the_case_for_patient_capital_rpt16.pdf
xxxvi Farmer Income Analysis, BMGF Farm Model, Monitor Group for Bill and Melinda Gates
Foundation, May 2010 and Wienco/Government of Ghana Maize Subsidy Report, 2011. The cost of a
xiv
package of inputs is derived from an average of 2 Ghana examples: £176 and £190, with 50% of this
as subsidy.
xxxvii IFAD’s Northern Rural Growth Programme estimates: Capacity building costs are derived from an
average of 2 Ghana examples: £33.60 and £25.17.
xxxviii MOFA (SRID Data), 2011
xxxixGhana subsidy study (May 2010) for maize; for rice and soya: Cross Country Analysis of Farmer
Income , Monitor Group for Bill and Melinda Gates Foundation and Wienco Maize subsidy report
2011.
xl This figure derives from, "Fertiliser Subsidies in Africa, Are the Vouchers the Answer?" IFPRI Issue
Brief, July 2009.
xli The internal rate of return is effectively the discount rate that could be achieved for the project to
break even. So, the short-lived benefits of the inputs scheme would still break even with a very high
discount rate of 119%. The longer-term returns from the Agdevco programme make it much more
sensitive to the discount rate employed, and it breaks even with a discount rate of 15% (which still
makes it a viable option).
xlii Anticipated Donor Committee for Enterprise Development (DECD) Audits
xliii GLSS highlights that each producer supports at least 5 people in the household. Anticipated
impact of improvement in productivity of 100,000 programme beneficiaries could have a multiplier
effect on livelihoods half a million people in the North.