Issue #5 54688 IFC’s quarterly journal on public-private partnerships & soil: Smallholder agriculture In this issue seeds innovation: Pairing commercial buyers with rural producers grain storage: A ready role for PPPs agricultural clusters: Powering Africa’s agricultural potential interviews: AgDevCo, Bill & Melinda Gates Foundation, Earth Policy Institute FOOD ppp s In partnership with Australia • Austria • Brazil • Canada • Catalonia (Spain) • Flanders (Belgium) • France • Ireland • Italy • Japan • Kuwait • Netherlands • Norway • Sweden • Switzerland • United Kingdom • United States • Public-Private Infrastructure Advisory Facility (PPIAF) • Global Partnership for Output-Based Aid (GPOBA) • Private Infrastructure Development Group (PIDG) • African Development Bank • Asian Development Bank • Brazilian Development Bank (BNDES) • Caribbean Development Bank • Central American Bank for Economic Integration • European Investment Bank • European Bank for Reconstruction and Development • Inter-American Development Bank • Infrastructure Consortium for Africa • Islamic Development Bank Issue #5 – April 2012 IFC Advisory Services in Public-Private Partnerships 2121 Pennsylvania Avenue, NW • Washington, D.C. 20433, USA • +1 (202) 458 5326/7 • ifc.org/ppp Editorial Tanya Scobie Oliveira • Alison Buckholtz Art & Design Jeanine Delay • Victoria Adams-Kotsch Disclaimer This journal was commissioned by IFC, a member of the World Bank Group, through its Advisory Services in Public-Private Partnerships department, which helps governments improve access to basic public services through public-private partnerships in infrastructure, health and education. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. Cover photo © Richard Goerg/istockphoto Letter from IFC Almost a billion people are hungry. And the effects on food production from drought and sudden spikes in prices for fuel and fertilizer can very quickly swell the numbers of people suffering from malnutrition. Further complicating the equation Photo © Adam Fagen is a global population that will grow by a third, to 9 billion, by 2050. Yet insufficient production is only part of the problem. Com- pounding it is fragmented and insufficient innovation, massive waste resulting from poor storage and distribution, and the White House Kitchen Garden, Washington, D.C. complex and ever-growing effects of climate change. As U.S. Secretary of State Hillary Rodham Clinton said in a 2011 speech at the International Food Policy Research Institute, “A hunger crisis is not solely an act of God. It is a complex problem of infrastructure, governance, markets, education. These are things we can shape and strengthen.” IFC is responding to this call for a comprehensive approach to feeding the world. The private sector, working alone and in partnership with governments, is part of the solution. Private sector capital, skills, and technologies can have a big impact through increased innovation and efficiencies. In this issue of Handshake, focused on public-private part- nerships across the agriculture value chain, leading thinkers explore many different aspects of and solutions to food scarcity. These voices from industry, from nongovernmental organiza- tions, from foundations, and from across the World Bank Group, bring to life the seriousness of the challenge ahead. These voices also inspire us, because working together, we can make survival more certain for a billion people around the world. Lars Thunell Executive Vice President and Chief Executive Officer, IFC In this issue Seeds & soil Innovation Smallholder agriculture | 16 Extending a hand | 45 Bangladesh seed project | 19 Cultivating a new breed | 48 Seeding change | 20 Productive alliances, productive results | 50 The rise & fall of food crops | 24 Preparing for disaster | 52 A modern Noah’s Ark | 27 The geopolitics of food scarcity | 55 16 62 Irrigation ICT Investing in irrigation | 28 ICT for agriculture & First in irrigation PPPs | 34 rural development | 58 Desalination for agriculture | 36 Online and on time | 61 Where there’s muck, there’s money | 38 Herders call home | 62 Constructed wetlands | 40 Nano Ganesh | 65 Small farmers, big dreams | 42 2 | IFC.ORG/HANDSHAKE Columns Storage Storage solutions | 66 PERSPECTIVE A problem of plenty | 68 Insights & opinions Beyond storage | 73 Feeding the future | 06 The grain chain | 74 COMPASS Receipts that pay | 76 Surveying the PPP landscape Agribusiness development through PPPs | 10 74 MONEY TALKS Financing & Funding PPPs Public Pension Partnerships: The new “PPP” | 14 LEGALEASE Law & legislation, decoded Legal complexities in irrigation PPPs | 32 Ag clusters Incubating opportunities | 78 Agricultural cluster PPP flourishes | 81 Catalytic capital | 82 Markets Marketing farmers | 84 IFC | 3 Contributors 20 84 82 54 Jyoti Bisby Victoria Delmon is an Infrastructure Finance Analyst and GETPPP is a Senior Counsel in the World Bank Legal Vice Coordinator in the Financial Solutions Department Presidency. of the World Bank. Pay Drechsel Michelle Battat is Global Theme Leader and Head of the Resource is a consultant through the World Bank/FAO Coop- Recovery & Reuse group at the International Water erative Program, focusing on improving food security Management Institute. and agricultural value chains in the Middle East and North Africa. Indira Janaki Ekanayake is a Senior Agriculturist in the Agriculture and Rural Marie-Hélène Collion Development Unit of the Sustainable Development is Lead Agriculturist at the World Bank, coordinating Network and Task Team Leader of the Zambia Irriga- a program of public-private investments to promote tion Development and Support Project at the World smallholder agriculture competitiveness in Latin Bank. America and the Caribbean. Neeraj Gupta Mariana Dahan is a Senior Investment Officer in IFC Advisory Ser- is a Telecom & ICT Policy Specialist and strategy vices in Public-Private Partnerships, South Asia, and consultant in the Information and Communications leads the global agribusiness PPP sector team. Technologies Unit at the World Bank. Maggie Haslam Jeff Delmon is a freelance writer for the University of Maryland’s is a Senior Infrastructure Specialist in the Financial School of Architecture, Planning and Preservation. Solutions Unit of the Finance, Economics and Urban Chris Isaac Department and the Global Expert Team on PPPs at is the head of AgDevCo’s country office in Maputo. the World Bank. 4 | IFC.ORG/HANDSHAKE Julian Lampietti Infrastructure Advisory Facility (PPIAF) of the World is Lead Program Coordinator in the Agriculture and Bank. Rural Development in the Middle East and North Africa Region of the World Bank. Prabhu Pingali is Deputy Director of Agricultural Development at Jay Lurie the Bill & Melinda Gates Foundation. is an Investment Investment Officer, IFC Infrastruc- ture and Natural Resources, East Asia and Pacific. Riikka Rajalahti is a Senior Agricultural Specialist in the Agriculture Cledan Mandri-Perrott and Rural Development Department of the World is Lead Financial Officer in the Financial Solutions Bank, specializing in Agricultural Innovation Systems. Group of the Finance Economics of the Sustainable Development Vice Presidency of the World Bank. John E.H. Ryan is Senior Researcher-Enterprise Development & Nomathemba Mhlanga Business Model Analysis at the International Water is an Agribusiness Economist in the Rural Infrastruc- Management Institute. ture and Agro-industries Division of the Food and Agriculture Organization of the United Nations. Pilar Santacoloma is an Agribusiness Economist and Team Coordinator David McKee of the Agribusiness PPP work in the Rural Infrastruc- is President, Key International LLC. ture and Agro-industries Division of the Food and (davidmckee59@msn.com). Agriculture Organization of the United Nations. Gene Moses Makiko Toyoda is a Strategy and Knowledge Management Officer in is a Product Lead for the Global Warehouse Finance the Global Agribusiness department at IFC. Program in the Global Trade and Supply Chain Solu- Barnabas Mulenga tions Department at IFC. is a project coordinator for the Zambian Ministry of German Vegarra Agriculture and Livestock. is IFC’s Global Head for Agribusiness and Forestry; Francois Onimus he was formerly Senior Manager in IFC’s Trade and is Senior Water Resource Specialist at the World Supply Chain Department and Country Manager for Bank. Indonesia. Miriam Otoo SPECIAL THANKS TO is a Post-Doctoral Fellow in the Economics of Resources Recovery at the International Water Atul Mehta Management Institute. Director, Global Manufacturing, Advisory and Services, IFC. Edouard Perard Richard Henry is Regional Coordinator for South Asia and East Asia Chief Industry Specialist, Global Agribusiness and and Global Water Coordinator in the Public-Private Forestry, IFC. IFC | 5 Perspective By German Vegarra & Gene Moses Feeding the future 6 | IFC.ORG/HANDSHAKE Photo © Danilo Pinzon You’ve probably already heard the Malthusian Productivity is also driven by increased access to projections targeting our planet’s finite capac- finance, access to better and more timely infor- ity to feed a growing population—projected to mation, and the ability of farmers to manage reach 9 billion by 2050—in the face of dwin- business risks. All of these gains result in higher dling resources of suitable land and water in food production. They also allow farmers to productive climates. Prices for basic commodity generate more income, raising living standards foods have peaked twice since 2008, making for a population that is heavily concentrated in headlines around the world. Most experts agree developing countries. that if we continue to use today’s techniques and Increased productivity spurs concerns as well— approaches to grow food, the math in the global because climate change and steady pressure agriculture equation won’t add up to a sustain- on natural resources are key challenges for the able future. agriculture sector. Sustainability should be the But by working together, the public and private driving force behind strategies to reach maxi- sectors can help deliver abundant, affordable, mum productivity. and nutritious food for all—a key ongoing goal of the World Bank Group. Likewise, IFC’s Reducing Losses strategic focus on agribusiness is critical because Preventing food losses is the second half of of the sector’s role in food security. Sustainable the food security equation. This area presents food security in turn creates broad development the biggest opportunity to quickly address impact, and directly contributes to poverty food security, because large gains can be made reduction. After all, in low-income countries, in preventing these losses through relatively the agricultural sector often accounts for half or straight-forward improvements in distribution more of gross domestic product, and 60 to 80 and infrastructure. PPPs can often be a good percent of total employment. conduit for these improvements. Restoring sustainable food security to manage- A 2011 study commissioned by the Food and able levels requires a two-pronged approach: Agriculture Organization of the United Nations greatly increasing productivity of the food (FAO) concluded that roughly one-third of food supply while also reducing losses within the produced for human consumption is lost or food supply chain. wasted globally, which amounts to about 1.3 bil- lion tons per year. In low-income countries, food Increasing Productivity is lost mostly during the early and middle stages Agricultural productivity relies on many fac- of the food supply chain; little food is wasted at tors. Improving farming techniques through the the consumer level (unlike in middle- and high- development of new seed varieties, the introduc- income countries). tion of agro-chemicals, and improved irrigation The causes of food losses and waste in low- methods can together and separately lead to income countries are mainly connected to tremendous gains. IFC | 7 harvesting techniques, storage and cooling facili- Not all improvements, however, owe thanks to ties in difficult climatic conditions, and other technology; they simply require examining old agri-related infrastructure deficits. The benefits of problems in new ways, and with a concerted good grain storage are especially obvious: simple spirit of partnership. Rural productive alliances, solutions like storing surplus grain in vertical irrigation via integrated agri-cluster initiatives, silos instead of warehouses or open platforms can and agricultural extension programs are linking reduce losses due to rot, theft, and misuse by a groups through cooperative efforts. Collabora- staggering 20 percent. tive financial products like warehouse receipts, Functional roads, rails, and ports—often requir- weather insurance, and farmer finance are reduc- ing serious investments to connect rural areas to ing the risks inherent to the sector by surpassing urban markets—allow farmers to sell more and the traditional boundaries of financial services. waste less. Since many of the places with the But we can’t make this progress alone. To highest food losses are in hard to reach locations succeed, we need to increase our partnerships that can least afford it, transportation is a chal- with our World Bank colleagues, leading agri- lenge that can’t be ignored any longer. focused organizations, and influential donors. With SAGCOT in Tanzania and Beira Corridor Together, we can increase meaningful research in Mozambique, the public sector has carefully and development, augment agri-infrastructure, planned for the success of its agri-infrastructure and promote technology transfer and farmer projects. In Kenya, the national rail project training, paving the way toward progress. transports freight to and from the port at Mom- And on this road, even the tiniest products sym- basa, with approximately 30 percent of its goods bolize progress. The development of drought- comprised of agriculture products. In these cases, tolerant and flood-tolerant seeds in India and the public sector provides the core transporta- Bangladesh, for example, means that farmers tion needs, and then relies on the private sector who used to lose a rice crop once every two or to build upon them. In these large investments, three years are now able to sustain their produc- PPPs or private sector initiatives are driving the tivity even under extreme weather conditions. change. That gives them the ability to get their children to school and to invest in their family’s health. Innovative solutions As the Gates Foundation’s Prabhu Pingali tells Innovation doesn’t require mammoth changes— Handshake, “That’s the transformative power of indeed, basic agriculture has sustained human agriculture.” Transformations like these—rooted beings for over 10,000 years—but information in partnerships—are key to our collective future and communications technology breakthroughs as our planet’s resources shrink and human in the past century have improved productiv- demand grows. ity in a way that would stun our forebears. 8 | IFC.ORG/HANDSHAKE The agriculture chain  Inputs: seeds, water,  fertilizers, and pesticides  Harvesting   Storage  Distribution: ports, and roads airports,    Markets  Consumers  ICT   Innovation    IFC | 9 Agribusiness development through PPPs The case of Sub-Saharan Africa High risks and limited governmental financial resources require partner- ships in agricultural development. PPPs are particularly important for enhancing social and environmental sustainability and the commercial viability of food supply chains. Agriculture’s positive potential for sustainable 65 percent of the population. However, the development and poverty reduction in develop- high risk (actual and perceived) of doing busi- ing countries is well recognized. Nowhere is this ness in agriculture often deters private sector potential greater than in Sub-Saharan Africa participation. (SSA), where the agriculture sector contributes Simultaneously, the high level of investments between 20 to 50 percent to the national gross required in the region means that the public domestic product and employs approximately 10 | IFC.ORG/HANDSHAKE Compass an appraisal of PPPs used to improve productiv- ity and drive growth in the agriculture sector in SSA. The appraisal focused on 26 cases in five countries: Ghana, Kenya, Nigeria, Tanzania, and Uganda. Overall, the cases illustrate how the partnerships engaged the complementary strengths of the various actors and bridged gaps that they would otherwise have faced alone. By Pilar Santacoloma & Nomathemba Mhlanga Types of partnerships Some of the PPPs are formal and contractually- based, while others are loose statements of intent and purpose. Most involve a wide range of governmental partners at various levels. These Photo © Marisol Grandon include specialized public sector institutions cre- ating an enabling environment for private sector participation, nongovernmental organizations sector cannot go it alone. An estimated net (NGOs), and private sector participants acting annual investment of approximately $11 billion as market facilitators. Other partnerships involve is needed if Africa is to address its food security donors and bilateral agencies. Where global food concerns by 2050. Against such a backdrop, companies are involved, their interest is in prod- public-private partnerships (PPPs) are an impor- uct development and improved supply chain tant institutional mechanism for gaining access to additional financial resources, risk sharing, and address- ing other constraints in pursuit of Partnerships covered many topics sustainable agricultural development. and intervention areas but were To enable informed formulation of policies and programs to effec- mainly focused on new technology tively facilitate PPPs, the Food and Agricultural Organization of the development and introduction. United Nations (FAO) undertook IFC | 11 coordination. Most partnerships involve many initiative have recorded an average yield of 3.25 partners; narrow partnerships are the exception. tons per hectare, against the national average of Other PPP arrangements range from jointly 1.25 tons per hectare. In monetary terms, this implemented development programs, to grants translates to an increase in farm earnings from for private sector services, to co-equity invest- $235 per hectare to $1,000 per hectare. This ments. There are also ongoing dialogue and partnership, which started on just 250 hectares cooperation platforms and broad programmatic of land in 2007, currently has an area of 5,163 initiatives, as well as projects targeted to specific hectares involving 3,500 farmers from five local farmers or enterprises. Most of the partner- governments in the Kwara State of Nigeria. ships focus on primary production and helping Leveraging investments is another important small-scale farmers; there is less attention given indicator of PPP performance. For example, to post-production enterprises. in Ghana about $4.6 million was invested in Overall, the partnerships covered many top- the Cadbury Cocoa Partnership in 2010. This ics and intervention areas but were mainly partnership included Cadbury International focused on new technology development and (private partner), Ghana Cocoa Board (public introduction. There were several regional and partner), several NGOs, and the cocoa-growing sub-regional initiatives, where similar issues community. were faced in a specific sub-sector in multiple To achieve success, all parties need to recognize countries. that their goals complement each other. An enabling economic, regulatory, legal, and politi- cal environment is the cornerstone of sustainable Partnership impact private sector participation. The public sector When PPPs are well executed, they impact must establish an appropriate macro-economic positively on the people involved. Overall, the and legal environment to raise the confidence cases have demonstrated strong performance of the private sector. A clear understanding of for delivery of benefits to the intended stake- the roles and obligations of the parties is also holders. For example, in a partnership between critical for optimal PPP operation. In case of the private company Olam and Kwara State of failure, these success factors become challenges Nigeria, rice farmers that benefited from the PPP constraining the expected benefits of PPPs. To achieve success, all parties need to recognize that their goals complement each other. 12 | IFC.ORG/HANDSHAKE Moving forward Partnerships might address: Private sector voluntary standards to reduce costs and risks while increasing benefits from capacity to supply in line with market requirements; Fair and equitable contracting to improve the efficiency and alignment of supply and utilization along food chains while mitigating risks and protecting interests of farmers; Responsible business practices to mainstream business models and practices that support the public develop- ment agenda; and Food loss reduction to take action on losses along the food chain. If these objectives are achieved, FAO believes that PPPs can continue to be important for enhancing social and environmental sustainabil- ity and the commercial viability of food supply chains. In the process, they can also increase value addition and capture by small-scale producers and processors. ©Food and Agriculture Organization of the United Nations, 2012. The views expressed in this publication are those of the author(s) and do not necessarily reflect the views of FAO. Photo © IRRI IFC | 13 Public Pensions Partnerships: The new “PPP” By Jeff Delmon Mea culpa. Yet another col- longer end of the spectrum—alongside more umn not directly focused on risky equity and real estate investments. the topic for this edition. This makes a marriage between pension funds How about this: agricul- and infrastructure sensible on many levels. Long- ture is all about sowing term opportunities for pension funds plus long- and reaping, reaping and term capital for infrastructure projects equals sowing, just like pension economic growth for the country. Given the funds, which are like very generous size of many pension funds, even a few long-term grain silos. There are percentage points of the portfolios allocated to opportunities to use that grain in the infrastructure could make a significant impact. interim, before the farmer needs it back to take to market, for very productive purposes. And There are a number of different opportunities for so we turn to pension funds and infrastructure. pension funds in the infrastructure space. Some The U.K. government announced in November are already active, in equity and debt for utili- 2011 its intention to mobilize £20 billion from ties and companies that focus on infrastructure, pension funds to finance infrastructure. This was operation, equity, and refinancing of debt for followed by an MOU with the National Associa- existing assets (for example, operational PPP tion of Pension Funds in the U.K. But of course projects) with proven demand and revenue. the devil is in the detail. However, the U.K.’s announcement implies new construction and new assets. This is a more chal- Money is deposited in pension funds to be lenging prospect for pension funds. paid back gradually, giving these funds enviable access to long-term, patient capital. Funds need to optimize their investment portfolio across a Retirements at risk? broad range of assets, of different duration and Who among us wants our comfortable retire- levels of risk, to make a solid return and be ready ment on the golf course or the beach (or just to pay out as and when people retire. In most not in line at the soup kitchen) dependent on countries, pension funds have few investment whether the government gets its infrastructure options outside of government bonds at the strategy right? Or whether these PPP projects are as robust as we had hoped? 14 | IFC.ORG/HANDSHAKE Money Talks Pension funds should be managed with cau- sion funds with infrastructure for some time. tion—even more cautiously than banks manage But infrastructure debt is a complex investment, money—and the government should not con- reserved for the most sophisticated of inves- fuse funding pensions with political priorities. tors, and few of the pension funds have the The irony of the U.K.’s approach is that this in-house capacity to drive credit assessment of a government has been particularly critical of PPP, PPP project, much less arrange PPP debt. Also, dragging the Treasury through a painful process prudential rules make it difficult to invest in of defending its work. Of course, good will greenfields, or even most existing assets, without come of the criticism, as iron sharpens iron, and credit enhancement. The monoline insurers— Treasury is being pushed to further improve the traditional providers of credit wraps that would PFI program. But if government is serious about take some of the key risk out of such invest- using pension funds to support infrastructure, it ments—have fallen away, with only limited signs will need to create a safe environment for pen- of re-emergence. sion funds, and PPP will assume an even more Some governments, like Brazil and Russia, man- critical role. date big banks (Brazilian Development Bank and In addition to the deal offered to private inves- Vnesheconombank respectively) to allocate pen- tors under PFI (roundly criticized by the govern- sion fund resources directly or indirectly, in the ment as being too generous), pension funds may manner believed most expedient. Others create need additional comfort. They may even need financial intermediaries to provide credit support guarantees to move them to invest, such as the to infrastructure to protect or attract pension certainty that their infrastructure investments funds, like the India Infrastructure Finance will never yield less than an investment in gov- Company Limited or the Indonesia Infrastruc- ernment bonds would. (Rumors suggest that the ture Finance Facility. Some use legal mechanisms sole incentive to be offered by the government and political encouragement, like certificados to pension funds is a reduced management fee de capital de desarrollo in Mexico. In others, the for infrastructure investments, though it is hard government provides comfort letters, funding, to see how pension funds can act without a bit and other support to bring in pension funds. The more enticement.) new infrastructure debt funds in India are good examples of this. So how will the U.K. provide this extra some- thing to protect the pension funds? Treasury Each approach has its shortcomings. The was to announce more details of its plan as arranged marriage between pension funds and this column was going to press. PPP, though perfect on paper, is difficult to do well in practice. As Ben Franklin advised, “Keep your eyes wide open before marriage, and half- One size doesn’t fit all shut afterwards.” But do we have that luxury? The U.K. is not alone in facing this challenge. Governments have been trying to match pen- IFC | 15 Smallholder agriculture The pathway to a hunger-free Bangladesh By Prabhu Pingali I am an agricultural economist by training and transform itself from growing a single crop of by passion. It is my core belief that agriculture low-yielding rice, mainly for subsistence, to development is fundamental for hunger and producing two crops of high-yielding rice. I poverty reduction and for jump-starting was a young boy when my village first started economic growth. planting the high-yielding rice variety. I remem- My belief in the transformative role of agricul- ber my father and grandfather discussing how to ture is not just based on reading textbooks on store and market the surplus that was generated economic development—it comes from expe- from this new variety—a novel problem for the riencing the incredible impact that the Green village. Revolution had on my own life. I am a first-generation beneficiary of the Green My roots are rural. I was born and brought up Revolution and very proud of it. My schooling in a small rice-growing village in the coastal and my college were paid for from the surpluses delta region of Andhra Pradesh in South India. generated on our farm. My ability to leave the During my lifetime, I have seen the village farm was made possible by the farm’s productiv- 16 | IFC.ORG/HANDSHAKE seeds & soil ity growth. My early experiences have made me a passionate spokesman for the role of agriculture in economic There are several new opportunities that can development and for the transforma- make an enormous difference to the lives of tive role that technology, markets, and the poor: policy can play in raising agriculture Flood-tolerant rice developed by the productivity growth. International Rice Research Institute Despite the enormous success of the (IRRI) helps a rice crop survive under- Green Revolution, countries like India water for up to ten days. Given the and Bangladesh still have unacceptably amount of flooding in Bangladesh, and high levels of hunger and poverty. We the additional risk of extreme climate have made progress, but we are moving events anticipated due to climate change, too slowly. submergence-tolerant rice is an impor- tant source of security for poor farmers. Golden Rice, which is enhanced with B-carotene, can prevent Vitamin A deficiency-related diseases, a severe prob- lem in Bangladesh. Improving access to Golden Rice varieties can have an enor- mous impact on the nutritional status of farm households, especially for women and children. Cell phones are becoming ubiquitous in urban areas, and their use is growing rap- idly in rural areas. There are 65 million cell phones in Bangladesh today, covering 40 percent of the population. Our ability to provide services to farmers, such as ex- tension advice, banking, and market in- formation, is significantly enhanced due to the spread of cell phones. Cell phones have also provided farmers fast and novel ways of marketing their produce. Photo © Gates Foundation IFC | 17 History has shown us that when conditions are right, farmers have consistently responded with dramatic improve- ments in productivity growth. Consider the case of dry-sea- son rice production in Bangladesh. Boro rice production has increased from 10 percent of Bangladesh’s rice production in 1966, when the Green Revolution started, to 61 percent in 2008. The additional rice cultivated with improved varieties now feeds nearly 22 million people annually. Another example is the rising popularity of women-man- aged homestead gardens across Bangladesh that produce micronutrient-rich fruit, vegetables, and poultry. The homestead garden food production program, started with 1,000 households in 1990 by Helen Keller International and Bangladeshi nongovernmental organizations, now covers more than 4.7 million individuals in 870,000 house- holds across the country. Homestead gardens increased food supply and improved nutritional status, especially for women and children, in the poorest households. These are just a couple of amazing examples of the ability of farmers to rapidly grasp opportunities when they make sense to them. In that respect, farmers in these two coun- tries are no different from farmers anywhere else in the world. The route out of hunger and poverty starts with smallholder farmer productivity growth. What poor farmers need from us are the innovations, institutional support, and the enabling policy environment that will allow them to profit- ably enhance their productivity. I believe we can see a hunger-free South Asia in our lifetime, but it will require us to take urgent action to re-energize the agricultural sector. It will require us to focus on rapidly enhancing farm productivity. We must seize the opportuni- ties to win the war against hunger and poverty. This was originally published on Impatient Optimists, a publication of the Bill & Melinda Gates Foundation. 18 | IFC.ORG/HANDSHAKE seeds & soil Photo © IRRI Images Bangladesh Seed Project Adaptive measures for vulnerable communities As a result of rising sea levels, Bangladesh faces the risk of losing 17 percent of its land mass. Salinity intrusion, floods, and drought damage millions of hectares. Crop yield in affected areas has dropped to as low as one metric ton per hectare, compared to the aver- age yield of 4.5 metric tons per hectare. These and other effects of climate change threaten the country’s agriculture sector. In response, the private seed sector in Bangla- desh—with support from IFC—is developing ways to enhance production, distribution, and adoption of high-yielding and stress-tolerant seeds. Methods include training farmers and supply chain members and monitoring progress on quality and performance. IFC’s partnerships with leading seed companies such as Lal Teer, Supreme Seed, and ACI offer additional adaptive measures for the farming community. The part- nerships will increase production and supply of high yielding varieties, including stress-tolerant rice and vegetable seeds that can withstand harsh weather conditions. This is a crucial initiative to ensure national food security and reduce economic vulnerability of farmers in stress- prone regions. IFC | 19 Seeding change Prabhu Pingali is the Deputy Director of Agricultural Development at the Bill & Melinda Gates Foundation. He has also served as Director of the Agri- cultural and Development Economics Division of the Food and Agriculture Gates Foundation’s Organization (FAO) of the United Nations and as an agricultural econo- Prabhu Pingali on PPPs’ mist at the International Rice Research Institute and the World Bank’s Agricul- role in transforming ture and Rural Development Depart- ment. He has authored ten books on agriculture food policy, technological change, productivity growth, and resource management in the developing world. He has received several international Interview by Alison Buckholtz awards and recognitions for his work. 20 | IFC.ORG/HANDSHAKE seeds & soil “ The primary source of productivity growth is the smallholder farmer, and that’s been very clear for us from the beginning. ” What do you see as the big-picture What role can public-private challenge for agriculture in developing partnerships (PPPs) play in agriculture? countries? As we observe the changes taking place in One of the biggest challenges that many devel- agriculture over the last couple of decades, we’ve oping countries face today is how to sustainably seen increased levels of PPPs throughout the feed their growing urban masses. Specifically, value chain. There are many examples upstream, how do you get smallholder agriculture to where the private sector has moved rapidly in connect up to the retail systems that provide genomics and genetic research and engineering. food for the urban masses? As governments gear There’s also significant private sector investment up for this challenge, they have to depend on in crop and livestock improvement activities. private sector investment to connect the farm Governments can play different roles in produc- to urban consumers. tivity areas. In some cases, governments have IFC | 21 been very active in getting this knowledge and tion areas because returns on these investments technology deep into particular countries. In have been quite low. That’s where PPPs make other cases, they’ve been catalysts, as in the case the most sense. What the public sector can do is of OECD country governments working with underwrite the risk that the private sector would developing countries in accessing these technolo- face in making R&D investments. We have gies. Moving forward, we’ll be seeing more of some very successful cases of this. Flood-tolerant these joint investments in infrastructure, around seeds, for example, came out of a fairly intense seeds, and in technology dissemination activities. couple of decades of R&D work at the Interna- tional Rice Research Institute in the Philippines. Is government involvement in R&D key Those varieties were tested and adapted to local to enhancing a nation’s food security? conditions in India and Bangladesh, and then the private seed companies got into the game Yes. Let’s take the example of advances that are and carried out the adoption of these varieties taking place in genetic engineering for corn— throughout the whole region. These partnerships advances in drought tolerance or advances in were very effective because the public sector took resistance to various diseases. A lot of these on the risk of making the investments into R&D advances are being funded by private sector com- in creating these varieties. Once it was clear that panies in the U.S. and Europe. The challenge these varieties were going to make a huge differ- is, how do you apply these technology advances ence, the private sector took them over. to maize production in Africa? The transfer is The ultimate positive impact is on smallhold- essential, as the African public sector’s R&D is ers who essentially faced enormous flooding weak. It doesn’t have the same level of modern risk and would lose a rice crop once every two science to address the problems around drought or three years, and who are now able to sustain and disease. So the public sector in many African their productivity even under high flood condi- countries compensates for this weakness by using tions. That then has a big impact on their food conduits: multilateral agencies, governments in security, it has an impact on their ability to get OECD countries, or private foundations. They their children to school, it has an impact on how can then access these advances and adapt them they invest in health and education. That’s the to the local conditions, and then release the transformative power of agriculture. resulting improved varieties in their countries. Where do you see today’s opportunities? How can PPPs serve this need for greater investment in R&D? There are tremendous opportunities for much stronger collaboration between the international The private sector has been reluctant to make private sector and governments, especially major investments in lower-potential produc- 22 | IFC.ORG/HANDSHAKE public sector R&D enterprises in many African effective partners in the process, providing some countries. It’s not a willingness problem. There’s level of demand-side input. Countries have to be a willingness to do it. I think the problem is able to say, “These are our specific needs, these not having the regulatory capacity within the are the technologies we’re interested in.” That’s country in order to be able to screen and use going to be a challenge for quite some time. these advanced technologies. More local capacity is needed in terms of scientific manpower to be Sustainable agricultural productivity: the key to poverty reduction Bill & Melinda Gates Foundation Photo © Gates Foundation IFC | 23 seeds & soil The & FALL VIDEO Photo © Ilya Bushuev One crop seed becomes extinct every single day. 10,000 BC 8000 BC 6000 BC It took over 10,000 years from the advent of agriculture for crop diversity to develop... 24 | IFC.ORG/HANDSHAKE SEEDS RICE WHEAT USA PHILIPPINES CHINA 93% of the varieties Out of thousands 90% of the varieties sold in 1903 were that once thrived, only grown in the last extinct by 1983 a few hundred remain century have been lost Evidence indicates that humans first started eating grain seeds and subsequently planting crops around 10,000 BC. Since then, farmers’ selection turned wild plants into a rich variety of agricultural crops. Each of these varieties was not only different in terms of nutrition, flavor, and culinary qualities, but also carried genes that helped it survive pests and disease, floods or droughts, as well as temperature extremes. It is these resistance traits that we will need to adapt our food crops to a changing climate. However, this genetic diversity is being lost at an unprecedented rate. As commercially mass-produced seeds replace family and heirloom varieties that once were handed down from generation to generation, the genetic variety in fields is reduced. As corporations continue to patent the genetic code of new seeds as well as the seeds themselves, new varieties from that plant can no longer be bred—or its seeds replanted. As a result of these factors and others, an estimated half of all crops have been lost in the past century. To solve this problem, seeds must be preserved for future generations in seed banks such as Norway’s Svalbard Global Seed Vault, the most secure and advanced protector of crop specimens. 1900 2000 BC 1 1000 2000 ...but only 100 years for 50 percent of it to disappear. IFC | 25 At the end of the world Svalbard (Norway) is geologically stable, well above sea level (130 meters/430 feet), and enjoys low humidity and no measurable radia- tion. In addition, the arctic perma- frost offers natural freezing so that in the event of mechanical failure, seed samples remain frozen, even without Photo © Mari Tefre electricity, for 25 years. A global seed bank The world needs new crop variet- ies which can be productive in a changing climate and feed growing populations. To develop these new varieties, plant breeders and farmers need access to the genetic diversity of all crops. But seeds are becoming Photo extinct at an unprecedented rate, and Artwork by © Mari T efre national seed collections are often Dyeveke Sanne > lost due to war and mismanagement. Over 740,000 seeds Since 2008, the vault has received more than 740,000 seed samples, making it the most extensive col- lection of crop diversity in the world. Seeds are stored and sealed in custom-made three-ply foil packages. The packages are sealed inside boxes and stored on shelves inside the vault Photo © C at -18°C (-0.4°F). IM MYT 26 | IFC.ORG/HANDSHAKE Photos © seeds & soil Only ha lf of one v ault has been fill ed. The vault consists of three highly secure rooms sitting at the end of a 125 meter tunnel inside the moun- tain. The roof and vault entrances are adorned with art by Dyeveke Sanne—a requirement in Norway for all government-funded construction projects exceeding a certain cost. g essin proc d See ts. aul thev to e ads nel l A tun A modern Noah’s Ark In March 2008, the Svalbard Global Seed Vault opened with VIDEO 268,000 varieties of seeds from across the globe. About 1,100 kilometers from the North Pole, it was designed to withstand global warming, earthquakes, and even a direct nuclear strike. It now holds an estimated three-quarters of the biological diversity of the world’s major food crops to protect humanity from crop extinction and starvation. IFC | 27 Investing in irrigation Strengthening private sector participation By Cledan Mandri-Perott & Jyoti Bisbey Irrigation of agriculture is central to rural development and growth. To achieve the best results, governments must carefully consider how investments can improve the use of existing water resources. Public-private partnerships (PPPs) can improve delivery and management of irrigation services. The construction method, the way investment is recovered throughout the life of the project, and terms by which agricultural production is linked to the project are critical aspects of the design of sustainable irrigation PPPs. Many aspects of the irrigation sector have yields to resolve food security have altered the changed throughout the decades, but not the rules of the game. Governments concede that basic development paradigm. Public funding public resources are limited, and they need to for capital investment, combined with public prioritize to achieve better value for money for management and a subsidized supply of water the agricultural sector. One promising solution resources to farmers, has until recently moved involves a combination of public and private the sector forward incrementally but depend- expertise for improved sector management and ably. Now, climate change, constraints on water delivery of irrigation services. resources, and the need for increased agricultural continued on page 30 28 | IFC.ORG/HANDSHAKE Irrigation PPPs in irrigation have a limited track record, but some form of concessional financing is typically implemented to allow for private sector involvement. In most cases, schemes would not be sustainable without some form of public support. Guerdane, Morocco (2004) West Nile Delta, Egypt (2011) Project costs: $85 million Project costs: $450 million Farming activity: Cash crops Farming activity: Mixed Size & scope: Up to 10,000 ha Size & scope: 80,000 ha PPP model: Design Build Operate PPP model: Design Build Operate Scope of private contract: Irrigation Only Scope of private contract: Irrigation Only Bidding variable: Lowest tariff Bidding variable: Lowest tariff Bidding Status: Two bids. Bidding Status: One bid (not opened). Operating successfully. Project was restructured. Chanyanya, Zambia (2008) Megach-Seraba, Ethiopia (2011) Project costs: $2.5 million (pilot) + Project costs: $47 million $32 million Farming activity: Subsistence Farming activity: Subsistence Size & scope: 4,040 ha Size & scope: 300-2,600 ha PPP model: Operate & Maintain PPP model: Build Operate Transfer Scope of private contract: Irrigation Only Scope of private contract: Irrigation Only Bidding variable: Quality-based & Bidding variable: Lowest tariff minimum OMM payment Bidding Status: InfraCo led development. Bidding Status: Five bids. Operating successfully. Under negotiation. IFC | 29 continued from page 28 Lack of financing for operations and maintenance HOW TO IMPROVE The dramatic expansion of irrigated areas in the irrigation SCHEMES? world has not been matched by a similar expan- sion in financing the management of irrigation Resulting from decades of massive investments systems after construction. Consequently, in in water development schemes, irrigation today many systems water is wasted in the upper and waters one-fifth of the world’s cultivated land. unavailable in the lower sections, while water Much of this investment has taken place in deliveries are often untimely and unreliable. developing countries, and many of the world’s Pumping stations, canals, gates, and metering poorest people depend on food produced on systems are in disrepair, and only about 25 to 30 irrigated land. percent of water diverted into large canal systems Irrigation investment reached its peak during the in developing countries reaches thirsty crops. mid-1980s, when $2.5 to $3 billion per year was Insufficient cost recovery committed by external funding agencies globally. However, since the 1980s, total investments have Low water charges and poor recovery rates risk substantially decreased. The World Bank now the efficient maintenance of the existing water invests less than $1 billion per year in irriga- infrastructure as well as additional investments tion projects, and total spending by all donors on future water-development projects. Charges and financial institutions averages around $2 rarely reflect the cost of production, consump- billion per year. This fall is partly a result of the tion increases beyond the optimum level, and general decline in agricultural finance since the subsidies that may be in place disproportionately mid-1980s. serve the better-off. This pattern of financing creates a vicious cycle: financial difficulties cause Lower levels of investment in irrigation schemes irrigation departments to defer maintenance to While some irrigation systems have operated the detriment of the water system, while farmers successfully for long periods of time, high and complain about the poor services and have little increasing construction costs of the schemes, incentives to pay for services. Despite all this, poor production performance of many irriga- the politically-rooted system of public provision tion systems, falling real prices of crops, and and subsidized water charges protects the water concerns about negative environmental impacts economy from the influence of actual market of projects have led to a slowdown in the rate of forces. irrigation investment. This has also significantly Emphasis on physical infrastructure reduced the willingness of donors and interna- tional financial institutions to invest in irrigation Government efforts to improve the management activities. And the tight financial position of of irrigation have focused mostly on building many governments limits their ability to fund hydraulic infrastructure and on the creation projects from domestic budgets. of physical capital in the form of dams, aque- 30 | IFC.ORG/HANDSHAKE ducts, diversion weirs, and canals, and less on institutional and implementation arrangements. GOVERNMENTS WILL However, persistent problems with the design, CONTINUE TO PLAY A construction, operation, management, and use of irrigation projects have led donors and MAJOR ROLE national governments to reevaluate the emphasis As this incipient market evolves, the need to on engineering and technical design in irrigation create the necessary linkages between the private planning and management. sector and the public becomes even greater. Regardless of the level of private sector involve- PRIVATE PARTICIPATION: A ment (for example, in construction, financing, and agricultural production), some form of POSSIBLE SOLUTION? active public sector collaboration is needed to In response to these challenges, governments make these projects successes. This underscores have delegated management responsibility to the fact that in irrigation PPPs there is a need other institutions, notably user associations to create a market that is prepared to invest in or private companies. However, along with long-term assets, and that the necessary incen- the pressures to decentralize and transfer the tives are in place to ensure sustainability. Innova- management of irrigation systems comes a tion is needed in structuring projects, whether need to understand the factors that contribute it is in contract design, financing structures, or to the long-term success of irrigation schemes. procurement. Understanding how to design and manage this A number of other factors will affect success, sub-sector is necessary for market forces to and they are all rooted in understanding that improve irrigation systems’ performance and the currently constrained financial markets will sustainability. affect the design and type of any developing Including private participation in this sector is PPP structure. Strategies and projects must be complex. The system needs to be designed sus- adapted to new market conditions. These include tainably from an engineering and environmental an early focus on bankability of the proposed perspective, and also in terms of operations and scheme and a clear delineation of roles among maintenance (including any linkages between the construction of assets, their maintenance and production and capital investment). Appropri- operation, and the production of agricultural ate institutional arrangements and contractual goods. Flexibility in bidding to allow financial frameworks need to be put in place to transition close is also key. Most important, rethinking the seamlessly from one implementation arrange- manner of government support—both financial ment to the next. Most importantly, the right and regulatory—will transform today’s limited incentives need to be created for the private progress into the next generation’s irrigation sector, farmers, public agencies, and others to success story. achieve a sustainable, truly collaborative scheme. IFC | 31 Legalease Legal complexities in irrigation PPPs By Victoria Delmon By their nature, public-private partnerships types of irrigation, which can be compounded by (PPPs) involve many legal issues, from the legal variation in these restrictions within a country frameworks that guide their structure to the from one jurisdiction to the next. day-to-day implementation of the contract itself. These legal issues can take on new dimensions and complexity when applied to irrigation. Here Water extraction are some of those specific to irrigation PPPs: Restrictions on extracting water (the key input to irrigation PPPs) can significantly affect the Land structure and feasibility of a transaction. All irrigation PPPs involve the use of land, and Levels: Water extraction can be limited by are therefore complicated by laws and regulations national or international law. Bodies of governing ownership, title, and use. water that are defined as international waterways are subject to international law that Ownership: Land ownership may be limited to can restrict water extraction. Waterways in the local parties or may prohibit ownership by the Nile Basin fall under a treaty of the Nile Basin private sector. In Ethiopia, rural land is owned Initiative that limits the amount of water that by the government and only individuals who can be extracted, as well as its use. were willing to farm it personally are entitled to own land. Permits: Extracting water usually requires a per- mit, often issued by the ministry of water or the Title: Land title can also be difficult to ministry of the environment, or sometimes both. establish, particularly in countries where there Water user associations sometimes also play a are significant customary land rights (common role. Determining who grants permits and the in Sub-Saharan Africa). process for obtaining them can be difficult and Use: Complications can arise from restrictions can lead to delays in project implementation. on land use for irrigation generally or particular 32 | IFC.ORG/HANDSHAKE Charges: The pricing regimes for water extraction can be complex and vague, making it hard to determine how they are set, who sets them and whether there are different rules for raw water and for irrigation. The price of water is critical to determining the financial feasibility of a potential PPP. The private provider needs certainty regarding the price of raw water, the price at which it can on-sell irrigation water, as well as the quantities it is allowed to sell. Public Counterpart Complex institutional arrangements can make it difficult to determine who the appropriate public counterpart is for irrigation PPPs— typically, the national entity in charge of irriga- tion services. However, competing claims from the authority responsible for water resources or the ministry of environment can complicate this. Local entities may also play a role. An important consideration is whether the relevant entity has the power to enter into PPP arrangements—a subnational authority or a parastatal may need express power to do so. For more on legal and commercial PPPs in irrigation, together with precedent contracts, visit the PPP in Infrastructure Resource Center at www.worldbank.org/ppp. Photo © CIAT IFC | 33 Recurring droughts force Moroccan farmers to rely heavily on irriga- tion. In the southern part of the country, citrus farmers on the Guer- dane perimeter have long depend- ed on water from an underground aquifer. But years of intensive agricultural practices have seriously diminished groundwater supplies. The government worked with IFC to attract private investment in an irrigation network that could chan- nel water to the perimeter from a distant dam complex. The resulting concession was the world’s first public-private partnership irriga- tion project. First in irrigation PPPs Guerdane, Morocco 34 | IFC.ORG/HANDSHAKE Irrigation The perimeter of Guerdane, in the Moroccan related to the project were allocated to the vari- province of Taroudant, covers approximately ous stakeholders. The construction and collec- 10,000 hectares and produces 50 percent of tion risks were transferred to the concessionaire, Morocco’s citrus crops. For years, private wells and the government was responsible for ensuring pumping into the Souss underground aquifer water security. The demand/payment risk was were the only source of irrigation water for about mitigated by a subscription campaign; farmers 600 citrus farmers, but due to overexploitation, paid an initial fee covering the average cost of the level of groundwater was decreasing by an on-farm connection. The concessionaire’s con- average 2.5 meters a year. Many farms were struction obligation did not begin until subscrip- abandoned as private wells dried up or pumping tions were received for 80 percent of the water costs became unaffordable. The threat to Moroc- available. The risk related to water shortage was co’s high value citrus industry was undeniable. allocated to the concessionaire, the farmers, and To alleviate the lack of water in the perimeter, the government. the 1995 Watershed Management Plan of Souss- The unique selection criteria was the lowest wa- Massa allocated an average yearly volume of 45 ter tariff, which supported the government’s goal million cubic meters of water originating from of making surface water accessible to the largest the Mohamed Mokhtar Soussi-Aoulouz dams, number of farmers possible. The public subsidy about 40 miles away. The government sought was designed to maintain water tariffs equivalent a private partner to construct a 300 kilometer to current pumping costs. The winning bidder water irrigation network to transport the water provided a tariff significantly lower than the and a distribution system to deliver it to farm- price that farmers in Guerdane had typically ers based on the size of their citrus groves. The paid for groundwater supplies. surface water allocated for the project met half of the water needs of the citrus farms in the Results perimeter. • Safeguarded a citrus industry that provides The Moroccan government entered a 30-year direct and indirect jobs for an estimated concession with Omnium Nord-Africain to 100,000 people. build, co-finance, and manage an irrigation network to channel water from the dam complex • Made surface water available to farmers and distribute it to farmers in Guerdane. The at an affordable price. total project cost was estimated at $85 million, • Mitigated the risk of depleting under- with the government providing $50 million, ground water resources. half as a grant and half as a subsidized loan. VIDEO The private partner provided the balance. The concessionaire has exclusivity to channel and distribute irrigation water in the perimeter. Operational, commercial, and financial risks IFC | 35 Photo © Amy Goodman Desalination By Edouard Perard Agriculture consumes the most fresh water of Arab Emirates, and the United States. The most any other sector. Globally, agriculture is respon- active private firms in the desalination market sible for an average of 70 percent of fresh water include Doosan, General Electric, Hyflux, Suez, consumption; in some countries, that figure and Veolia Environment. jumps to 80 to 90 percent. Given the forecasted During the last several years, important techno- global population increase, the agriculture sector logical improvements have significantly lowered will have to produce 70 percent more food by energy requirements—the primary operating 2050, according to estimates from the Bonn cost. In the early 1970s, desalination plants con- 2011 Conference: The Water, Energy and Food sumed more than 20 kilowatt hours of electricity Security Nexus. This will stress water resources per cubic meter. Currently, desalination plants even further. Governments worldwide, facing a consume between 3.0 and 4.5 kilowatt hours of possible water crisis in arid regions, are search- electricity. At this rate, the cost of desalinating ing for options to ensure a reliable water supply water per cubic meter ranges between $0.75 and for agriculture, and desalination is one of those $1.25 for seawater, according to the Interna- options. tional Desalination Association. Desalination for drinking water is a well-estab- Wider use of salt water for irrigation would lished technology. The International Desalina- free freshwater for other uses and increase food tion Association counts more than 10,000 security for people living in dry coastal areas. desalination plants around the world, 99 percent As Wired reported in 2010, a British company of which are small scale projects. Many of these has developed a low-cost irrigation system that projects are implemented under public-private allows saline and brackish water, which contains partnerships (PPPs), but most are established more salinity than freshwater, to be used for as engineering, procurement and construction growing crops. The Dutyion Root Hydration projects. Most plants are located in Algeria, System uses a network of underground pipes to China, Kuwait, Saudi Arabia, Spain, United deliver water directly to a plant’s roots. Water 36 | IFC.ORG/HANDSHAKE Irrigation for Agriculture then diffuses through the walls of the polymer While the experience with desalination for pipe because of differences in moisture levels, agriculture has so far been limited to some which act as filters and leave contaminates projects in Israel, Spain, and high-income behind. Almost any water source can be used— Middle Eastern countries, several projects even industrial wastewater—without the need are currently under consideration in low- and for secondary purification. middle-income countries. In Morocco, for As always, environmental costs also need to be example, the government is planning a PPP to taken into consideration, especially air pollu- build a new desalination plant in the Chtouka tion and greenhouse gas emissions for large region to provide water for high-value crops. desalination plants. There may also be damage (IFC is the project advisor.) In Chile, a private to marine life due to the pumping of seawater firm has proposed to develop a 2,000 ha unoc- into the plant and discharge of residual salts and cupied government-owned agricultural land, minerals. combined with a desalination plant, under a PPP in Llanos de Caldera. The land would be rented At its current price level, desalinated water is still to farmers, who would then pay for desalinated not economically viable for most agricultural water to be used in irrigation. use, considering the tremendous amount of water necessary for food production (1,300 and Though desalination for agriculture is still at an 3,400 liters of water required for one kg of wheat early development stage, technological improve- and rice, respectively). However, desalinated ments leading to lower-cost solutions may make water has become more affordable for high value it a more viable option to ensure a reliable water crops such as fruit and citrus products, which supply for agriculture. For the foreseeable future, are less water-intensive (13 and 50 liters of however, desalination will remain limited to water required for one tomato and one orange, high-value crops. respectively). Photo © Lisa F. Young/istockphoto IFC | 37 Photo © Nico Saporiti Urbanization in low-income countries—which typically takes place against a backdrop of poverty and food insecurity—strains the alloca- tion and use of land, water, and nutrients in peri-urban and urban areas. One of the resulting challenges is what to do with the daily genera- tion of millions of cubic meters of solid and liquid waste. Sanitization of this waste is seen traditionally as a public sector obligation, and consumes a large part of municipal budgets. Until recently, private sector participation has been limited to the extraction, treatment, or conveyance of solid waste or fecal sludge from on-site sanitation systems to disposal sites. Now, an emerging set of innovative entrepre- neurs are recognizing the opportunities in waste. Private companies can profitably transform nutrients, water, energy, or organic fertilizers Where there’s from the waste streams into vital agricultural resources. In Ghana, for example, Waste Enter- muck prisers contracted with a municipality to trans- form the existing wastewater stabilization ponds into thriving aquaculture facilities. Fish, well fed there’s on the nutrients from the waste, are then sold by the company for a profit. Part of the income is money being spent on maintaining the wastewater treat- ment ponds, guaranteeing a share of the spoils for all partners. Waste Enterprisers’ business model works, according to Founder and CEO Ashley Murray, because it is built around harnessing economic Reinventing value from human waste. “By rebranding human waste as a needed input instead of a waste out- the economics put, our waste-based businesses create both a physical and financial demand for waste, com- of sanitation pletely reinventing the economics of sanitation,” Murray said. By Miriam Otoo, John E.H. Ryan & Pay Drechsel 38 | IFC.ORG/HANDSHAKE Irrigation Wastewater from agro-industrial applications is program is identifying innovative enterprises also being reused to generate energy to meet the in low-income countries that reuse domestic internal thermal and electric power requirements and agro-industrial waste resources, including of the industries and to sell to the local electric fecal sludge. Data analysis will allow testing of a company. For example, plants run by the Thai variety of scalable business models. Biogas Energy Company convert wastewater IWMI’s initial research has found that entrepre- from the processing of cassava and other agricul- neurial initiative and well-crafted PPPs are vital tural commodities into biogas. This then fires the to the success of these new waste entrepreneurs. turbines that generate electricity for the internal There are limits in public capital and a need to requirements of the agro-industries and distribu- leverage private capital and entrepreneurial talent tion in the local grid. Any excess can then be to bring about change. Therefore, emphasis must sold to the local grid. The purified waste water be placed on analyzing the role of entrepreneur- is used for irrigation or returned to the public ship and PPPs in relation to the sustainability canals. and up-scaling potential of existing and prospec- Energy recovery is another evolving part of the tive waste reuse businesses. reuse equation, as it can provide the economic Though potential opportunities for business in leverage for the recovery of nutrient or water waste reuse are clear, it has also become appar- resources to address soil fertility depletion and ent that public and private actors must work water stress. together to ensure scaling-up and sustainability of such businesses. For example, composting New role for PPPs of solid organic waste into organic fertilizer Public-private partnerships (PPPs) have an is recognized as a reuse system with multiple important emerging role in transforming waste benefits, especially in areas where resources for into a business opportunity because of the agricultural production are limited or fertilizer potential cost leverage for sanitation services. prices are increasing. However, most composting Until now, the magnitude of waste resource plants set up by researchers or nongovernmental recovery has remained very limited and largely organizationions remain biased toward technical restricted to the informal sector, even though results and hardly survive their pilot phase. the agricultural value of these waste resources Successful organic fertilizer producers, on the is well recognized. other hand, have leveraged key strategic part- The Resource Recovery & Reuse program led nerships with the public sector as well as com- by the International Water Management Insti- munity-based organizations and other private tute (IWMI-CGIAR) is hoping to change this entities. These relationships reduce risk associ- situation. In partnership with the International ated with high capital investments and optimize Fund for Agricultural Development, the Swiss the allocation of resources and activities while Agency for Development and Cooperation, and increasing market access. This opens the door to the Bill & Melinda Gates Foundation, the new profit—and the sustainable solutions that profits ensure. IFC | 39 Not all wastewater is the same. Yet in many seaboard serving as inspiration, the team made cities, rain, greywater, and blackwater receive water conservation and reuse a priority, creat- equal billing when it comes to treatment: all flow ing a sustainable home that is functionally and directly into municipal sewer systems. That’s why aesthetically in harmony with its environment a team of University of Maryland students, fac- while protecting and producing resources. ulty, and professional mentors designed Water- One of the team’s primary goals was to incor- Shed, their first place-winning entry in the U.S. porate constructed wetlands into the design as a Department of Energy Solar Decathlon 2011. way to recycle rain and greywater. WaterShed’s Though the primary objective of the Solar design, successfully used for years in commercial Decathlon is to challenge teams to build and installations, offers a compact version fit for a operate solar-powered homes, WaterShed’s residential scale. WaterShed’s constructed wet- team saw the contest as an opportunity to take lands allow the homeowner to harvest and reuse sustainable design a step further. With the both rain and greywater for landscape irriga- nearby Chesapeake Bay, on the U.S.’s eastern tion and to support its on-site edible gardens. Photo © Jeff Gipson Constructed wetlands Recycled water feeds residential gardens By Maggie Haslam 40 | IFC.ORG/HANDSHAKE Irrigation It blends in seamlessly with the home’s architecture and landscape. There are other benefits, too. Recycling grey- WATER RAIN POTABLE water minimizes impact on sewer systems, saving money, SOLAR ROOF GREEN ROOF energy, and above all, water. GREY WATER Irrigating with water processed BLACK WATER by constructed wetlands can RETENTION WETLAND TREATMENT WETLAND reduce water usage by 30 to 50 percent a year. IRRIGATION WaterShed’s constructed SEWAGE wetlands resemble the natural AQUIFERS marshes found in the Chesa- peake Bay. They are effective water filtraters in all kinds of Water type Use weather, including temperatures below freezing. The water harvested on site comes from two Potable Drinking primary sources: storm water, which funnels directly from the home’s inward sloping roofs; Rain Irrigation and greywater from the bathroom shower and sink, which sit directly above the wetland beds. Grey water Irrigation Water enters the wetlands, where native plants (no biosolids) (w/filtering) work with microorganisms to strip it of soap, pollutants, excess nutrients, and other patho- Black water Any gens. Once filtered, the water can be used for (biosolids) (w/treatment) irrigation, stored for future use, or returned to the water table. All of WaterShed’s irrigation water is recycled greywater from the home’s wetlands. Com- bined with compost made on site, it feeds over 15 types of fruit, vegetables, and herbs in the garden, as well as the surrounding landscape. d es h o w S li This provides the homeowner low-cost and relatively low-maintenance access to fresh, organic food while controlling their impact on the environment. IFC | 41 Irrigation Small farmers, big dreams Growing entrepreneurs Zambia’s Irrigation Development and partner with each other to expand their Support Project is an integral aspect of reach, and these groups then team up with the country’s initiative to build multi- commercial farmers for greater access to level, self-contained farm blocks to create resources, ultimately enhancing the coun- economies of scale and volume and more try’s food security. flexibly respond to consumer demands. The Irrigation Development and Support Contributed by Indira Janaki Ekanayake, Project enhances income generation within Francois Onimus, and Barnabas Mulenga, these farm blocks by irrigating small plots with assistance from Cambridge Economic for household use. Successful smallholders Policy Associates, Ltd. Photo © Charles Schug/istockphoto 42 | IFC.ORG/HANDSHAKE Tier Irrigation Model Bulk water infrastructure: water source Pump and mains pipes; may include dam/reservoir. Pump house Professionally managed pivot irrigation growing 3 marketed food and cash crops, purchasing produce from emergent farmers, and providing support services. Pivots (60- 70 ha each) Tier Serviced blocks for emergent ***** ***** farmers growing food and 2 horticultural crops under ***** sprinkler or other irrigation for sale to and supervised by the Serviced blocks professional farmer. (c.5 ha per farmer) Tier Smallholder gardens or land currently farmed can grow 1 vegetables for local and subsistence consumption under some basic form of irrigation Smallholder gardens (<1 ha each) (e.g., furrow). Tier IFC | 43 Ugandan Oil palm Public-private partnerships (PPPs) are becom- ing recognized as a way to improve agricultural extension. PPPs can bring the efficiency of busi- ness to public service delivery when the govern- ment plays an enabling role. Under the oil palm component of the Vegetable Oil Development Project in Uganda, the government has put in place a unique PPP by promoting direct invest- ment to introduce oil palm cultivation by the large scale private operator Oil Palm of Uganda Limited (OPUL). The International Fund for Agricultural Development (IFAD) has provided funding to the government to establish the Kalangala Oil Palm Growers Trust (KOPGT), which provides funding to smallholders to develop their oil palm gardens. OPUL provides the know-how and inputs so that smallholders are using the same technol- ogy on their plots as on the large nucleus estate, while KOPGT is the go-between for farmers. While IFAD is financing the start-up costs and extension during an initial period, provision has been made for KOPGT to become a self- sustaining organization, financed by a margin of the earnings of its crop. Excerpted from “Vegetable Oil Development Project-Uganda: Interim Evaluation,” IFAD, December, 2009, cited in “Mobilizing the potential of rural and agricultural extension,” Food and Agriculture Organization of the United Nations and The Global Forum for Rural Advisory Services, 2010. 44 | IFC.ORG/HANDSHAKE Innovation By Riikka Rajalahti Extending a hand The private sector’s role in agricultural extension Extension services are integral to agricultural value chain-oriented services in partnership with productivity growth, development, and com- public authorities. To best support this expand- petitiveness. Developing high-quality, demand- ing and critical role of the private sector, public driven, multi-sector services is a key to meeting authorities can provide incentives to private food security, farmer livelihood, and export service provision; ensure robust regulation and goals. oversight; monitoring, technical support and In response to the changing demand—par- evaluation of service providers; coordination of ticularly the increasing market focus—private service providers; and financial support of under- sector extension services increasingly provide served issues (such as natural resource manage- input, commodity, business development, and ment) and marginalized populations. IFC | 45 Photo © Simone D. McCourtie/World Bank The following examples highlight the role of the private sector across select extension functions: 1 Improving technology transfer to increase export crop production and achieve food security Traditional technology transfer is an important part of the extension that often involves the private sector. Aspects might include: Public and proprietary technologies in new crop and livestock technology. Private sector financing of extension services for specific commodities, inputs, and/or value chains. Private sector firms and/or farmer cooperatives’ provision of technical advisory services for new production inputs (allowing public extension systems to shift attention to other important extension functions). 2 Intensifying and/or diversifying the farming systems of small- scale farmers to increase farm income In response to economic growth and changing consumer demand, extension can introduce new high-value crop, livestock, and other enterprise options to groups of farm households. The private sector, along with the public sector, can facilitate this in various ways: Innovative farmers, who have already developed these new production systems or enterprises on their own, can be instrumental in building farmer capacity to absorb the new approaches. Private sector financing of extension services, inputs, and/or value chains. Private initiatives in information and communications technology can expand the circulation of market, price, and weather information and be an efficient conduit for specific kinds of extension advice. Support to farmer and producer associations in improving access to larger urban markets. 46 | IFC.ORG/HANDSHAKE 3 Training for extension services The following three extension functions all require training that in many cases is provided efficiently and effectively by nongovernmental organizations and the private sector working together with the public sector: Building social capital and reaching economies of scale within rural communi- ties: As small-scale farmers strive to increase farm income, they need to work together through producer and self-help groups within these rural com- munities. These farmer groups and their leadership will require training in many areas, including organization, technology, and financial management and technical skills. These skills are especially important as the groups begin creating larger producer or farmer associations with nearby farmer groups. Educating farmers about sustainable natural resource management (NRM) practices: Land and water degradation is an increasingly serious problem and sustainable NRM practices should be a high priority for any government. However, adoption of NRM practices is often slow, as it requires investment up-front in exchange for long-term benefits. Farmers often lack the necessary training, knowledge, and skills to apply or implement sustainable soil, water, pest, and other NRM practices. They need to be educated to integrate cost- effective, location-specific NRM practices into their farming systems. Training rural women in nutrition, hygiene, healthcare, and family planning: In addition to the vital role women play across all areas of agricultural pro- duction and rural livelihoods, women are integral to alleviating hunger and malnutrition, and preventing disease. Training in family nutrition and in proper hygiene can support women in these efforts. Women in Agriculture Bill & Melinda Gates Foundation IFC | 47 Photo © Neil Palmer/CIAT Cultivating a new breed Brazil’s model to enhance technology transfer Through a 2007 project with the World Bank, the Brazilian Agricultural Research Corporation (EMBRAPA) was able to more closely link research with priorities identified by the users of agricultural technologies. EMBRAPA brought together academia, the private sector, and rural producers through joint ventures to improve agriculture in Brazil. Its success can be instructive for countries implementing similar programs. 48 | IFC.ORG/HANDSHAKE Innovation Agriculture is an important part of Brazil’s econ- herd animals. Future productivity increases can omy, but the country faces increasing regional be expected from the cattle vaccines, animal and international competition. New agricultural and plant disease diagnostic kits, machinery technologies and practices are necessary for and equipment prototypes, and farm manage- remaining competitive, as well as to meet the ment software created out of the grants. Other food and income needs of the poor and protect research products of socioeconomic, ecological, Brazil’s environment. However, until recently the and technological importance include more country spent very little on agricultural research, efficient ecosystem evaluations, development of and the research that was done was linked weakly molecular markers for genetic improvements in with client demand. It also failed to tap into the plants, alternatives for sustainable exploitation of broader universe of actors in agriculture. brushlands, and processes to improve the quality The public sector has traditionally been the of milk, fruit, and vegetable products. main investor in agricultural research. The National System of Agricultural Research is led Other nations can learn from EMBRAPA’s by EMBRAPA, the third largest research agency experience and reinforce their agricul- in the developing world and the most important ture systems. EMBRAPA president in Latin America. In the past, most research was Pedro Arraes Pereira offers the following carried out directly by this agency. To better recommendations: respond to farmers’ priorities and harness the capacity of a broader range of actors, EMBRAPA • Prioritize the permanent sought to diversify the research base and enhance qualification of researchers technology transfer. and support personnel. To do this, EMBRAPA established a competitive • Focus on research, prioritizing grants system to fund research that expanded the the weakest of the various links role of the private sector, universities, and farm- in the production chains. ers’ organizations. It has also increased interna- • Participate in public policymaking tional collaboration. Grants were made to 470 in the area of agriculture. public-private initiatives. This vast joint venture • Form national and international reduced institutional isolation and dependence research networks. on public resources in research. As intended, EMBRAPA remained the leader of this process • Interact profoundly with the but is no longer its primary executor. production sector in identifying research demands. The initiatives included innovations in new cul- tivars, hybrids, vegetation genotypes, and clones, Courtesy of IFPRI as well as more disease-resistant and productive IFC | 49 Productive alliances, productive results Pairing commercial buyers with rural producers Rural productive alliances pair commercial Support for the creation of rural productive buyers with small rural producer organizations. alliances—an economic agreement between By increasing the rural producers’ participation formally organized producers (cooperatives or in modern supply chains, these alliances increase associations) and at least one buyer—can remedy incomes and employment. They also create these challenges. Producers achieve economies of incentives for buyers and smallholders to establish scale, can ensure product quality and traceability, mutually beneficial relationships by ensuring and improve their position in the value chain consistent quality and delivery of products. through their involvement in basic processing (selecting, grading, and packaging). A revolv- It is not easy for smallholder farmers to enter ing fund enables the organization to develop into and benefit sustainably from modern financial management skills and obtain seed and agricultural value chains. The supermarket long-term capital, both key components of long- revolution has changed the parameters of market term competitiveness. demand: exporters, agribusinesses, and super- markets require large quantities of consistently high-quality goods that meet sanitary and phyto- How it works sanitary standards and arrive on time. Small-scale Rural productive alliances are often developed producers are often consigned to selling in less with government and donor support. In these demanding, less financially rewarding venues, cases, the cycle begins with a call for proposals such as open-air markets or through intermediar- to producer organizations and their commercial ies. Smallholders’ poor knowledge of distribution partners. The producer organization prepares a channels and prices also undermines their ability draft business plan which, if selected, is devel- to negotiate with buyers. oped into a full-fledged business plan with 50 | IFC.ORG/HANDSHAKE Photo © Robyn Lee Innovation World Bank-supported projects in Latin America In Latin America, the World Bank Group has helped support over 2,200 rural productive alliances in Colombia, Bolivia, Panama, Peru, Brazil, Jamaica, and Guatemala, benefitting approximately 110,000 rural families. The approach has also been adopted in Asia and By Marie-Hélène Collion Africa. The alliances have helped producer organizations improve their technical, organizational, manage- rial, and negotiating skills, and expand their the help of a selected private service market intelligence. In some cases, they also help provider. The private service provider members access private finance. These operational also submits pre-investment feasibility improvements have led to higher incomes and studies. Ultimately, plans with satisfac- increased rural employment, especially for tory technical, financial, and market agricultural workers and women working in feasibility receive funding. post-harvest activities. Alliance agreements typically specify: For buyers, the benefits have included secure • Product characteristics, such as access to products of consistently high qual- size and varieties to be produced. ity, which meet the sanitary and phytosanitary standards required by international markets and • Quantity to be produced or bought. increasingly important for domestic markets. • Production modalities: how a In Colombia, where this approach has been in product will be delivered, by operation since 2005, there is growing interest whom, and when, as well as from the agribusiness sector. A cluster model grading and packing requirements. is evolving where a hub agribusiness partners • Payment modalities and price with various producer organizations. This model determination criteria. allows the partnership to reach sustainable scale • The buyer’s contribution, such and allows for synergies to be developed for the as technical assistance, specific provision of advisory services. It also facilitates the inputs, and arrangements for possible development of a triangular approach to input reimbursement. credit involving the agribusiness, the commercial bank, and the producer organizations. IFC | 51 Innovation Preparing for Weather Index disaster Insurance shields farmers from loss Weather Index Insurance policies provide payments linked to publicly observ- able weather conditions, protecting farmers against catastrophic weather risk. Payments may vary based on rainfall in a nearby rain gauge; commodity price; aggregate crop yields; and groundwater levels in a well. Policies may be tailored to specific agriculture-related threats, such as: In Mexico: Via the “Fondos de Aseguramiento” (Self Insurance Funds, or SIFs) program, farm- ers can obtain crop and livestock insurance which is reinsured by Agroasemex, the national Agricultural Reinsurance Company. Crop insurance is typically based on yield, while livestock insurance is based on a catastrophe’s mortality or disease rates. Catastrophic insurance is provided by federal and state governments through CADENA, the Component of Natural Disaster Relief, which protects low-income producers affected by weather contingencies. A recent study confirmed Weather Index Insurance in Mexico increases yields per hectare by 6 percent and increases income by 8 percent. Photo © ~Darin~ 52 | IFC.ORG/HANDSHAKE In India: In Andhra Pradesh, groundwater supply insurance is offered to villagers in partner- ship with a local microfinance institution. Households can purchase as many or as few contracts as necessary to provide downside protection during seasons with limited rainfall. Photo © IRRI In Kenya: Livestock mortality due to drought imposes significant economic costs. This in turn impacts the welfare and well-being of farm- ers’ households. An innovative index insurance scheme links payouts based on regional satellite data tracking seasonal forage availability. Photo © Internews Network In Mongolia: Catastrophic Weather Risk Insurance is being piloted to protect the livelihoods of Mongolia’s herders, who are at risk for extreme weather phenomena—such as the severe winter dzud of 2010, which resulted in death for over 17 percent (8 million heads) of the country’s livestock. Photo © United Nations Development Programme IFC | 53 54 | IFC.ORG/HANDSHAKE Interview The geopolitics of food scarcity A discussion with Lester Brown Interview by Alison Buckholtz & Jeanine Delay Lester Brown, president of the Earth Policy Institute, is most recently the author of World on the Edge: How to Prevent Environmental and Economic Collapse. Throughout his career he has been honored with numerous prizes, includ- ing a MacArthur Fellowship, the United Nations Environ- ment Prize, Japan’s Blue Planet Prize, and 25 honorary degrees. His new book, Full Planet, Empty Plates: The New Geopolitics of Food Scarcity (W.W. Norton), will be published in September 2012. IFC | 55 Why has food security become What has caused the sudden one of the most pressing issues tightening of supplies? of our time? On the supply side, the rise in yields is slow- We have a potentially dangerous tightening of ing dramatically and in some countries this has the world food situation. I think people don’t already plateaued, including in the more agricul- yet realize how dicey things could get. After turally advanced countries such as Japan, Korea, grain prices went up in 2007-2008, export- Germany, and France. Farmers are using all the ing countries began to restrict exports to keep available technologies; scientists have nothing their food prices down. Russia and Argentina new to give them. So importing countries have restricted wheat exports; Vietnam banned rice started buying land in other countries—land exports. Suddenly, importing countries realized on which to produce food for their own citi- they no longer could count on the world market zens. These “land grabs” are entirely new—and to supply grain when they needed it. In the past it’s more than governments trying to buy or this was always the case, but after a half century lease land, it’s an investment issue. Land is the of surpluses we have now moved into this period new gold. Prices are going to go up. There are where things are tight. It’s every country for agribusiness firms and investment banks, along itself, and in this era of tightening world food with pension funds and university endowments, supplies, the ability to grow food is fast becom- putting part of their investments now in land. ing a new form of geopolitical leverage. Food is It’s hard to see where it is going to end. the new oil. Then there’s the issue of water, which is under- ground and out of sight. The land grabs are also water grabs where we will see competition developing. Egypt, with 80 million people, imports its wheat or the In this era of tightening world food water to produce it via the Nile. However, some of the principal land supplies, the ability to grow food is fast grabs are in Sudan and Ethiopia, becoming a new form of geopolitical which occupy 75 percent of the Nile leverage. Food is the new oil. watershed. So, a lot of the Nile water that goes to Egypt won’t be getting there in the future. That’s going to 56 | IFC.ORG/HANDSHAKE put a real squeeze in an area where population is is raising the price of water to its market value. growing very fast. In many places in the world, water is still priced Furthermore, we have 3 billion people in the as it was 50 years ago, as if it was a cheap and world trying to move up the food chain consum- abundant resource—which it no longer is. ing more meat, dairy, and farmed fish, and all this takes soybeans. As a result, demand for land What advice would you give to to grow them is exploding and now there’s more government officials who want land in soybeans than in any other crop in all the to make a difference? Americas, from Canada to Argentina, and it will keep growing. This not only has long-term con- sequences for food but also for climate change Food security is no longer a ministry of agri- and biological diversity. culture issue—it’s a social issue. When I joined the U.S. Department of Agriculture in 1959, the responsibility for food security was entirely What can be done? in the hands of the Department of Agriculture. Especially in the U.S., we just had to decide First, we need to address the population issue. how much idle cropland to hold out each year, The extent to which the populations are exploit- depending on the world market situation. But ing their water supplies is scary. Half of us today now, when I go to places like China, I tell the live in countries that are over-pumping aquifers officials there that they need a direct phone line for irrigation. This is a water-based food bubble, between the ministry of agriculture and the which leads to a false sense of assurance. We have ministry of energy because decisions being made these now in China, in India, Pakistan, Mexico, about energy may have a greater effect on food and the U.S. It’s most severe in China and India; security than anything that can be done at the World Bank data indicate that 15 percent of the ministry of agriculture. And the same applies population of India is being fed by over-pump- to transport. Each day there are more and more ing. That’s 175 million people. My calculation cars on the roads; at what point do countries for China is that 130 million people in China start to pave over their farm land to build more are being fed by over-pumping. highways? From now on, food security is going We also need to launch a worldwide campaign to to depend on the ministries of health and fam- improve water productivity much as we did for ily planning, agriculture, transportation, and grain productivity 60 years ago. The key to that forestry, all working together. IFC | 57 ICT Photo © NASA ICT for Agriculture and Rural Development By Mariana Dahan Turning difficult-to-access irrigation pumps on holder agriculture. Now, even more sophisticated and off with a mobile phone sounds like science ICT applications are emerging, including remote fiction for some farmers—too futuristic to be and satellite technologies for food traceability, true. Ditto for the fantasy of eliminating the sensory detection, real-time reporting, and status middleman from complex, graft-ridden distri- updates from the field. bution chains, which would ultimately enable ICT unlocks critical opportunities for the farmers to get better prices for their products. agriculture sector, which accounts for about But with new information and communication 40 percent of the world’s workforce, along technologies (ICT) for agriculture and rural with a large proportion of developing country development, the future has arrived. Mobile exports. Improving yields, productivity, and devices have already increased efficiency in small- 58 | IFC.ORG/HANDSHAKE Better prices, more Market information market-oriented produce Improved access to information Climate, disease Better disaster/risk information management Increased income for smallholder farmers Mobile applications Agriculture and information Improved access techniques and Higher-yield production platforms (SMS, to rural extension good practices Helpline, etc) and advisory Reduced transaction, Accurate assessment of RFID and smart services Extension services logistical and distribu- pasture health systems tional costs for input Linking farmers, suppliers Satellite imagery Minimize exploitation suppliers, and Agricultural trading by middlemen Improved market buyers directly and tendering linkages and Greater efficency and Improved traceability platforms distribution predictability and quality standards Better account- for buyers Online-insurance ing and trading Reduced administrative program practices costs Online and mobile Reduced fraud New opportunities for payment platform financial institutions Credit Higher-yield, more Improved access Insurance diversified production, to finance fewer losses Payment method Mobile devices have increased access to information and raised efficiency in smallholder agricul- ture. Today, emerging remote and satellite technologies are also used for food traceability, sensory detection, real-time reporting, and status updates from the field, as illustrated above. incomes in rural areas is important to solving to create and design innovative solutions. The the food security puzzle. Solutions like Nano Sri Lankan mobile phone application eDairy is Ganesh—the mobile irrigation switch—and a good example of this collaboration. eDairy, eChoupal—kiosks connecting farmers directly aimed at expanding cows’ milk production with buyers—are transformational tools that through increased pregnancy rates, builds on deliver better services to farmers and herders in research that shows that an increase in pregnancy developing countries. Readers can find more rates can be achieved by having timely access to information in the World Bank Group’s ICT veterinary services. With eDairy, farmers access in Agriculture eSourcebook. databases and request veterinary services directly. The private sector has a significant role to play The government-owned ICT Agency of Sri matching private technology and public funding Lanka provided 50 percent of the start-up fund- IFC | 59 ing, and a grassroots community development roll-out approach. The most successful have been organization is providing the technology and designed locally to answer specific challenges operational management. in target markets. In many cases, content is Unlike technology tools in other sectors, ICT created by factoring in the local language, crop, applications for agriculture and rural develop- and farming method. With such useful ICT ment have not followed a typical top-down, resources, the future has arrived. ICT is an important link in the value chain. Established and emerging technologies can be leveraged to deliver value at each stage of the agriculture sector lifecycle, as illustrated below: Aggregation and Retail, marketing, and Primary Production processing Distribution consumer education Mobile applications and information platforms (SMS, Helpline, etc) RFID and smart systems Satellite imagery Agricultural trading and tendering platforms Online-insurance platform Online and mobile payment platform 60 | IFC.ORG/HANDSHAKE ICT Online and on time eChoupal supplies farmers up-to-date market information and online sales channels Indian farmers face unique challenges, like marketing centers) and ITC Limited prices, as fragmented farms, weak infrastructure, and well as information and recommendations on especially the involvement of numerous inter- good farming practices. Farmers use the system mediaries—middlemen who use unscientific when they need to place orders for agricultural means to judge the quality of the product and inputs like seeds and fertilizers, helping them set prices. In the process, middlemen often make improve the quality of their produce and ulti- out with most of the farmers’ profit. Since price mately procure better prices. differences between good quality and inferior Each ITC Limited kiosk is run by a sanchalak— quality are small, there is little or no incentive for a trained farmer whose Internet or VSAT con- the farmers to invest in producing high-quality nection serves an average of 600 medium- to products. eChoupal, an initiative of ITC Limited large-scale farmers in the surrounding villages. (a large Indian multibusiness conglomerate), The sanchalak bears some operating cost, but in addresses this problem by linking rural farmers return earns a service fee for each e-transaction directly to opportunities to procure produce like done through his/her eChoupal. ITC plans to soybeans, wheat, coffee, and prawns. Now, farm- scale up to about 20,000 eChoupals, covering ers are discovering the true market value of their 100,000 villages in 15 states and servicing 15 agriculture and aquaculture. million farmers. ITC Limited has established over 10,000 eChoupal kiosks, each with a computer and Excerpted from Strengthening Agricultural Internet access, across several agricultural regions Extension and Advisory Systems: Procedures of the country, allowing farmers to negotiate for Assessing, Transforming, and Evaluating the sale of their produce online. In the same Extension Systems, edited by Burton E. Swanson transaction, eChoupal centers also allow farmers and Riikka Rajalahti. Washington, D.C.: The to access online mandi (government agricultural World Bank, 2010. IFC | 61 herders call home GPOBA pilot connects Mongolia’s farmers Contributed by GPOBA 62 | IFC.ORG/HANDSHAKE ICT A Global Partnership on Output-Based Aid (GPOBA)-funded pilot project in Mongolia provided access to modern information and communication technology (ICT) services to over 22,300 herders living in remote, sparsely populated, rural areas of Mongolia. The services have reduced communication costs for these herders, strengthened family ties, improved security and coordination associated with migration and response to harsh weather, increased economic activity, and contributed to more efficient governance and provision of social services. Mongolia, almost half the size of India, is the opment of the government’s Universal Access world’s least densely populated country: 2.8 policy. This included establishing a fund to million people live across 1.5 million square provide subsidies for the expansion of ICT kilometers. Because of the country’s vast and services into rural areas. The subsequent Mongo- challenging geography, the cost of providing lia Universal Access Pilot Project, signed in 2006 rural communications infrastructure is high. and completed in 2010, was one of GPOBA’s Before the World Bank and GPOBA helped to first grant agreements. develop and fund Mongolia’s rural communica- In line with the output-based aid (OBA) tion access program, most of the country’s ICT approach, GPOBA subsidies were paid to service infrastructure in rural areas was government providers only after the services (or “outputs”) owned and controlled, and there was only lim- were delivered and verified by an independent ited access to poor quality services in rural areas. expert. The GPOBA-funded pilot was followed Private mobile operators were not mandated to by a full scale roll-out financed by the World provide services to rural areas, which appeared Banks’ International Development Association to be commercially unviable. The lack of ICT (IDA) and the Universal Service Obligation services affected the rural population in multiple Fund of Mongolia. ways, limiting social communication and access to information and education media, and delay- The World Bank and GPOBA helped Mongolia’s ing response times in emergencies. Communications Regulatory Commission to manage and finance several “least-cost” subsidy To give Mongolians access to modern ICT competitions. The recipients of subsidies were services, the World Bank supported the devel- private operators responsible for installing and Photo © Johannes IFC | 63 Lundberg operating the rural voice and Internet services. rural residents are able to communicate easily, This approach harnessed the power of the private and benefit from educational and commercial sector by providing incentives to deliver services access to the Internet. It also opens a range of in rural areas. opportunities for the government, private sector, With the infrastructure and services now in place civil society organizations, and development across the country, many more of Mongolia’s partners to enhance service delivery by using new technologies. Results Through its work with the government and the only about 90 soums benefited directly Communications Regulatory Commission, IDA from World Bank and GPOBA financed and GPOBA projects financed: subsidies, a large number of soums ben- efited indirectly as the Universal Access Mobile base stations to provide mobile program demonstrated that demand phone services to the population of 90 for services in rural areas is significantly soum (district) centers and the surround- higher than originally expected. ing herder areas. The herder public access network, com- A network of about 180 satellite public bined with the mobile services, reduced telephones to serve herders in remote the average travel distance required to areas beyond the reach of the mobile make a call for herders in the target networks. areas to 15 km from 39 km. Internet services for schools, commercial 34 prime soum centers have broadband customers, and Internet cafés in 34 prime Internet access for public and private soum centers. users at the same tariffs as in the capital, The project’s successful implementation yielded Ulaanbaatar. Schools are connected at the following benefits: discounted rates, and in all of these 34 communities, people are benefitting All 335 soums in Mongolia have been from access to public Internet cafés. provided with access to mobile voice service, in most cases also enabling a medium-speed Internet service. Although 64 | IFC.ORG/HANDSHAKE ICT Nano Ganesh Nano Ganesh allows smallholder farmers across two Indian states to remotely turn their irri- gation pumps on and off using their mobile phones. This GSM mobile-based remote control system, exclusively for use with water pump sets in agricultural areas, makes it possible for farmers to control the pumps from any distance; check an availability of power supply at the pump end; recognize whether the water pump is on or off; and, in some models, get alerts through calls if there is a theft attempt of the cable or pump. The need for Nano Ganesh arose from the routine problems faced by farmers in operating irrigation pumps. In India and other parts of the developing world, a farmer may have to travel miles to turn on a water pump, and stay on the farm until irrigation is complete before return- ing—at any hour of the day, often late at night or early in the morning. There are fluctuations in power supply, difficult terrains, weather hazards, and other challenges. Nano Ganesh requires a mobile connection and phone, along with a mobile modem that attaches to the starter on the irrigation pump. Using the phone, an assigned code number switches the pump’s starter off and on, and a particular tone signals the off/on status of the pump and the electrical supply at the pump location. Currently, there are over 10,000 installations across the operational states in India. The application was developed by Ossian Agro Automation. Photo © IRRI Images IFC | 65 Storage solutions A ready role for PPPs By David McKee Some governments have responded to the and rice mills. Governments should use this unprecedented food price spikes of recent years expertise, engaging the private sector to build by increasing the stocks of grain that they hold and operate modern grain storages to hold larger as strategic reserves. For such policy initiatives to reserve stocks, or simply maintain the existing best enhance food security, the expanded cereals ones more carefully. Public-private partnerships stocks should be contained in modern bulk (PPPs) are an excellent vehicle for this. storage and handling systems that will minimize If properly structured, a PPP for government losses in storage, lower operating costs, and allow grain storage can ensure that: for efficient management of the grain in storage. Traditional storage of bagged grain in ware- • Precious public funds or borrowing capacity houses falls far short of fulfilling any of these are not tied up in capital construction costs. criteria. Nevertheless, it is still widely practiced • Storage facilities are built at a competitive by state grain agencies—especially in South Asia, price using the most suitable technology. and to a lesser extent in Southeast Asia and Sub- • Government agencies spend limited time Saharan Africa. on management of stored grain in a But private sector grain companies in all of these large facility. regions have experience building and operat- • Hiring of new public employees, including ing large-scale, state-of-the-art storage facilities labor for the expanded grain reserve, for port installations, inland grain production is minimized. locations, and at processing plants like wheat 66 | IFC.ORG/HANDSHAKE Photo © Seth Sawyers Storage • Know-how in grain management and of people loading and unloading bags from storage technology is transferred from the trucks and stacking and unstacking them in private sector to government. warehouses. • Contracts are structured such that private • Reduction in financial costs and environ- sector grain is stored in the same facility, mental problems associated with the poly- enhancing utilization. ethylene fiber bags and wooden pallets • Governments are not stuck with an unat- used in flat warehouses. tractive asset when policy or market con- • Reduction of land area devoted to grain ditions change and grain stocks must be storage, as 20 tons per square meter of reduced. surface can be put in a silo, compared to about 2.5 tons per square meter in bags in a warehouse. Long-term benefits • Inventory levels in silos can be monitored There are a number of solutions for automated via computerized systems tracking incoming bulk storage and handling of grains. Some and outgoing inventory via weighbridges. involve flat storages, but in most cases vertical silos—steel or concrete—provide the greatest • Reduction of pilferage due to sealed long-term benefits. Infestations from insects, and locked silos with automatic controls, rodents, and birds are prevented, as silos keep while bags of grain entering and leaving them out while allowing for more efficient and warehouses are easily miscounted. less frequent fumigation than required in a ware- house. In addition, effective temperature moni- Entrenched, inflexible bureaucracies often have toring is not possible with bagged grains, but is a vested interest in keeping any system as it is, in silos, via cables with sensors suspended from including when it comes to bagged storage of the roof hot spots. With this technique, any government grain. However, strong, visionary point in the grain mass can be readily detected leaders can improve food security for their popu- and addressed through efficient aeration, fumiga- lations—not just by enacting policies to store tion and/or recirculation of stored grain. Fur- more grain, but by storing it more efficiently in thermore, filling grain into and discharging from modern bulk silo systems created through well- silos are high speed operations. Other benefits structured PPPs. include: • Avoidance of rising costs and potential For further information: davidmckee59@msn.com. labor strife associated with large numbers IFC | 67 Photo © Gates Foundation A problem of plenty Grain storage lessons from India’s breadbasket Wheat is a staple of basic nutrition in India—from open-flame soft chapati to tandoor-fired crispy roti—and hence is a matter of national importance. The Food Corporation of India (FCI), an undertaking of the government of India, is responsible for distributing wheat from producing states to the rest of the country at subsidized prices to ensure the 330 million poorest individuals access to basic sustenance. Now, as a result of food-security policy reform, ris- ing commodity prices, and bumper harvests in recent years, India is faced with a problem of plenty: how to store the surplus grain. IFC worked with multiple stakeholders to create a storage solution. By Neeraj Gupta & Jay Lurie 68 | IFC.ORG/HANDSHAKE Storage By the end of 2010, India had stockpiled more gap. IFC was hired as lead transaction advisor to than 16 million tons of wheat—130 percent the Punjab State Grains Procurement Corpora- higher than its minimum buffer norm of 7 tion (PUNGRAIN) Ltd. million tons. Between rice and wheat, the FCI had previously contracted a grain storage stockpile totaled nearly 61 million tons. With silo public-private partnership (PPP) in Punjab only 42 million metric tons of available storage through a business model that incorporated in covered godowns (warehouses), the remainder transport and logistics in addition to storage. is stored in makeshift covered area plinth (CAP), However, the new, simpler silo business plan was or platform, facilities. a step in the right direction as the higher rental Because rice has priority in covered godowns, rate PUNGRAIN would pay, vis-a-vis conven- wheat is largely stored in CAPs, which are tional storage, would be offest by the oppor- susceptible to losses and rotting. With 25.4 mil- tunity cost of lost grain from the conventional lion tons of wheat procured in India in FY10 at storage system. Throughout the course of the the then-minimum sale price of 10,800 Indian concession, IFC learned lessons that can benefit rupees (Rs) per ton, even a 2 percent loss costs other agricultural storage PPPs. These include: the government nearly $110 million per year. In Punjab, the breadbasket of India, agriculture When the subject does not admit that contributes almost 40 percent to the state gross he has a weight problem, refocus the domestic product, compared with the national argument. average of 26 percent. Roughly half of the 16 In December 2011, India’s food minister million ton stockpile is stored in Punjab, with declared that, on FCI’s account, “no stock of 6.5 million tons stacked in CAPs. The govern- wheat and rice got damaged due to insufficient ment of Punjab and its Ministry of Food and storage space.” While IFC was anecdotally Civil Supplies recognized the urgent need for apprised of losses of grain of up to 20 percent improved storage of the 6.5 million tons. due to poor storage, the team also encountered Because of Punjab’s production capacity relative other statistics, in line with the food minister’s to the rest of India, FCI is required to procure statement, that attempted to demonstrate zero and distribute wheat to less productive states losses—and even gains in volume due to mois- through the Public Distribution System. FCI ture. Thus, in proving that the silos PPP repre- offtakes wheat from the government of Punjab’s sented value for money, IFC could not make an grain procurement agencies and reimburses the assumption about the actual loss. Instead, IFC agencies for storage costs. Thus, any initiative by illustrated the break-even point of losses where the government of Punjab needs the blessing of silos would make economic sense. This separated FCI. the argument from a debate on “what is the right In 2009, the government of Punjab asked the loss figure?” to “the government of Punjab and World Bank Group to help resolve the storage FCI should think about reforms if they believe IFC | 69 losses could be over 3 percent per year, either PPP Storage Charge (Rs) – FCI Reimbursement now or in the future.” Rate (Rs) = MSP (Rs) x L% By multiplying the minimum sale price (MSP) Rs1,175 / ton – Rs890 / ton = Rs10,800 / for wheat (FY10 MSP Rs10,800 per ton) by ton x L% 50,000-ton capacity and the estimated loss L = 285 / 10,800 = 2.6% from not storing in silos, one can arrive at the estimated fiscal loss. For example, a 1 percent LESSON: With 2.6 percent wheat loss or estimated loss would result in an Rs54 lakh more, the silos are more economical. ($108,000) opportunity cost gain for silos. The rate at which FCI was reimbursing PUN- If the roti is not perfectly round, it is still GRAIN (Rs890 per metric ton per year) implies worth eating. an additional cost of the silos PPP of Rs285 per IFC reviewed the entire value chain of the grain metric ton per year, or Rs142.5 lakh ($285,000) procurement and distribution system. In feasi- for 50,000 metric tons of storage in Year One. bility analysis, IFC debated the merits of a bulk- Solving for the breakeven loss (L): 250 Breakeven 200 2.6% Rs Lakh 150 100 50 0 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Wheat Loss % per Annum in Conventional Storage Loss Savings from Silos Storage Charge above FCI Reimbursement 70 | IFC.ORG/HANDSHAKE Public Farmers/ Quality Silo Operator— Distribution Commission Winning Bidder System Agents wheat wheat (PDS) N quantity quality W E $ Monthly Payment S Fixed Charge PA I D pa i d p (Bid Criteria) D AI ai + P D d ID pa PA i d pa i d p a i d PAI Pungrain Variable Charge d (per movement—S/MT) i pa p d i ai d pa i d a i d p a p handling system compared with a bagged-grain tions that achieve some but not all goals can system and presented the findings for a more serve as an engine for broader changes. efficient system to the governments of Punjab and India. IFC acknowledged the political High stakes for food bottlenecks in effecting any change to the system (namely concerning the bagged dispatch and security distribution through commission agents), but Private sector solutions for grain storage carry held to the holistic view of a better system. high-stakes implications for food security. Since The client’s singularity of purpose helped focus the start of the project in early 2009, there has and rethink phasing of reforms. The final project been a significant increase in attention by the structure centers on introducing an efficient Indian government to the policies that make storage system while allowing for future reforms storage possible. Agricultural storage is now in transportation and handling. an eligible sector for Viability Gap Funding, an amendment for which IFC had lobbied to Lesson: Although it is ideal to strive for ensure economic feasibility of projects and holistic system reforms, project-level interven- alleviate the fiscal burden at the state level. IFC | 71 Although the Punjab Silos PPP project rep- resents only a piece of the food distribution value chain, it demonstrates a transformation in policy thinking on how to more efficiently feed a nation. The government of India has now set out to develop a 2 million metric ton pilot of similarly modeled grain silo PPPs throughout India in consumption centers, addressing a gap in the ability of receiving states to store grain beyond the harvest season. Sharing the wealth Punjab’s storage experience has already begun to benefit other geographies. In neighboring Pakistan, where the topography and grain pro- curement system are broadly similar to India’s, IFC is supporting the governments of Sindh and Punjab (Pakistan) on silos projects representing 600,000 metric tons of wheat storage. By struc- turing elements like ancillary land development availability and wheat grading, IFC has further improved upon the PPP business model. Officials from Sub-Saharan Africa and East Asia, where grain losses and rotting are also prevalent, have expressed interest in similar projects. As successes mount, governments and procurement agencies will continue to realize that they can defer large up-front payments on storage facili- ties and outsource the technical operations to private sector experts. This article was originally submitted as a Smart- Lesson, a World Bank Group program which enables development practitioners to share lessons. For more information, e-mail smartlessons@ifc.org. 72 | IFC.ORG/HANDSHAKE Storage beyond storage Advice from the Punjab silos’ private operator Know your business private party takes place. This will ensure smooth In our endeavor to introduce new and highly and timely execution of the project and trouble- mechanized systems, LT Foods Limited was first free operations thereafter. to introduce silos for rice and paddy storage in India by installing them for our own rice mills. Factor in all the benefits It was a success. In the course of business, we Food storage in India isn’t just about food stor- had also seen silos abroad being used for storage age. It doesn’t belong in the storage category at of food grains, and adapting our rice model to all. It’s a food safety issue and a food security this purpose enabled us to ramp up quickly to issue, and government should give it a higher respond to the government’s bid. priority. These types of projects cost more, but they also achieve long-term benefits. For exam- Finalize the agreement before investing ple, silos reduce land use, compared to regular PUNGRAIN, Punjab’s government authority, warehouses, so they free up the land, and also awarded us the tender and we were declared the reduce labor cost. It’s a different kind of invest- selected bidders. On the basis of the govern- ment for the future. ment’s letter of award, we started working on the project. However, the government then reduced —Vijay Arora, Chairman, the fixed charges from the awarded amount. LT Foods Limited We learned from this that it is essential that in public-private partnerships, all documenta- LT Foods Limited, a 40-year-old company, is one tion, including legal agreements, are finalized of the leading processors and distributors of rice and and signed by all parties involved before actual rice-based snacks. Its flagship brand, DAAWAT, is on-site work commences and investment by the sold in more than 40 countries around the world. Photo © IFC | 73 Vurnman The grain chain Managing wheat imports in Arab countries By Julian Lampietti & Michelle Battat Arab countries depend heavily on imported tional security associated with holding physical food, particularly wheat, leaving them exposed stocks in food deficit countries. Well-managed to international market volatility. In total, Arab strategic reserves can help reduce price volatility countries import around 56 percent of the cereal by purchasing wheat when prices are low and calories they consume, the largest share of which releasing stocks when prices are high. comes from wheat. Some countries in the region Storage capacity in the region averages the import 100 percent of their wheat consumption equivalent of six months of consumption, and needs. Population growth, rising incomes, and ending stocks (beginning stocks plus production climate change will increase this dependency. and imports, minus exports and consumption) “The Grain Chain,” a recent World Bank/Food average four and a half months. Increasing these and Agriculture Organization of the United reserves can provide critical lead time to secure Nations (FAO) study, identifies three critical alternative wheat supplies or supply routes dur- steps toward rectifying the problem. ing times of crisis, and also offer psychological Increase reserves and draw them benefits that may prevent hoarding and pilferage. down according to clear decision rules Improve logistics for significant cost to ensure availability of supply and to savings mitigate price volatility The study assessed the efficiency and reliability Historical data suggest a strong negative correla- of the supply chain from the unloading port to tion between changes in global wheat stock-to- bulk storage at the flour mill, and found that use ratios and changes in international wheat the average import supply chain transit time prices: when the level of available wheat stocks is for wheat in Arab countries is 78 days, cost- high, the likelihood of a price spike is lower, and ing around $40 per metric ton. Improved port vice versa. Targeted safety nets like cash transfer logistics can drastically reduce these transit times programs may be much less expensive than stor- and costs. On average, 29 percent of total wheat age but they do not necessarily offer that addi- 74 | IFC.ORG/HANDSHAKE Storage Photo © Gates Foundation import supply chain costs are incurred at the region. A hub-and-spoke model can allow large port. Of these costs, 65 percent are driven by volumes of wheat to be shipped to a single deep- vessel turnaround time, which includes both water port in the region and then distributed to waiting time in the harbor and the time it takes multiple destinations with shallow-water ports. to unload the wheat once the vessel is at the Countries can also take advantage of a “parcel berth. Long turnaround times impact signifi- service” model, whereby smaller countries like cantly the cost of importing wheat. Wheat sup- Qatar and Bahrain benefit from importing wheat pliers also consider port logistics when offering a on shared vessels. Physical and financial hedging bid price for wheat tenders. Therefore, efficiency instruments can also reduce exposure to price improvements may reduce both logistics costs volatility and shocks. and the cost and freight price of wheat. Although the Arab world faces a unique set of Strategic partnerships and hedging constraints and risks, this approach is applicable instruments can reduce the risk of for any other net grain importing country seek- supply disruptions and price volatility ing to manage its exposure to import risks, and Regardless of a country’s preferred method of it is important for grain exporters as well. Arab wheat procurement, various risk management countries import the majority of their wheat techniques can improve food security. Countries from North America, Western Europe, can develop strategic partnerships with grain the former Soviet Union, and Australia; these traders and key grain exporting countries, in the key grain exporters can better serve the needs of form of a long-term contract with a global grain their customers by improving their understand- trader, or a free trade agreement with a grain ing of the risks Arab wheat importers are facing. exporter. This article was originally submitted as a Smart- There may also be advantages to working with Lesson, a World Bank Group program which neighboring countries to import wheat to the enables development practitioners to share lessons. For more information, e-mail smartlessons@ifc.org. IFC | 75 Illustration © Mat Barrand/istockphoto receipts that pay Warehouse receipts as collateral By Makiko Toyoda 76 | IFC.ORG/HANDSHAKE Storage Access to finance is critical for farmers, agricul- because of insufficient conventional loan tural traders, and exporters in emerging markets. collateral. Agricultural commodities are stored in ware- IFC has successfully applied this technique houses before they are shipped, and often, the through its Global Warehouse Finance Program. farmer, trader, or exporter storing the production The program facilitates pre-export warehouse is forced to sell early at suboptimal prices to financing through local banks by providing meet urgent financial needs. If they don’t sell, liquidity for on-lending or risk mitigation solu- they consider other short-term solutions to meet tions. To strengthen warehouse financing, IFC their financing needs, such as expensive overdraft offers advice to local banks, sensitizing them credit lines. 2 WHR issues by a licensed Warehouse Warehouses 5 GWFP Application 7 Loan disbursed to a Commodity Owner by a Bank Commodities WHR 6 GWF Guarantee or Funding 1 Commodity Short Term Guarantee or Loan deposited by a Funding Commodity Owner Commodity Bank Depositor WHR 3 Commodity Owner applies a loan to a Bank 4 WHR pledged to a Bank by a Commodity Owner Warehouse financing is a lending technique that to the use of WHR as collateral for short-term provides access to finance secured by the com- loans and teaching them to value the commodi- modities deposited in the warehouses, through ties and structure appropriate financing. IFC use of the warehouse receipt (WHR). It allows also advises the host country governments in farmers flexibility in the timing of their sales by reviewing the existing legal environment for enabling easy refinancing for the goods in stor- WHR financing, and provides recommendations age. Warehouse financing is particularly benefi- including licensing systems, inspection systems, cial for small farmers and SMEs who are often market information systems, and auction market unable to secure their borrowing requirements systems. IFC | 77 Incubating opportunities AgDevCo founder Keith Palmer on creating infrastructure for profitable agriculture Interview by Alison Buckholtz Keith Palmer is the Executive Chairman and principal sponsor of AgDevCo, an agricultural development company that identi- fies, develops and arranges financing for sustainable agricultural and agri-processing business opportunities in Africa. AgDevCo also arranges finance to develop agriculture-supporting infra- structure such as irrigation, feeder roads, and bulk storage. infrastructure, credit, and management expertise. There is enormous unexploited Each of them compounds the problem caused by agricultural potential in Africa, the others. but the paradox is that Sub- First, many areas do not have the infrastructure Saharan Africa is a net importer needed to support profitable agriculture. No of food. Why? electricity is supplied to the farm gates to drive the machinery, and although water supplies in Huge areas of land in Sub-Saharan Africa have local rivers and aquifers are plentiful, there is great potential in the sense that the soil and cli- no piped water to the site so you can’t irrigate. mate conditions are fine, and much of this land In these hot climates, with unreliable rainfall, is not farmed today. But there are three key con- irrigation is often essential. In many cases there straints preventing exploitation of this potential: are no all-weather feeder roads to get the agricul- 78 | IFC.ORG/HANDSHAKE Interview tural produce to market or to storage facilities to All our ventures must have clear potential to be minimize post-harvest losses. Once the infra- socially, environmentally, and financially sustain- structure is in place, farmers can make money. able. When the businesses reach maturity we sell But if they have to incur the cost of installing our stake and reinvest the proceeds doing “more infrastructure, it destroys the profit potential. of the same.” Second, you can’t farm without access to credit to fund working capital and fixed assets. It is How does that encourage very difficult to secure funding for early-stage agricultural ventures because the potential is not private investors? yet proven. But you need the funding to be able Once private investors see that the infrastructure to demonstrate that you can generate high yields will be there, that credit is available and some of and productivity. It’s a vicious circle. the risks have reduced, they are much more will- Third, in many African countries, there is very ing to invest in the growth of these businesses. little local knowledge of how to farm in African However, it’s a gradual process; once early inves- conditions. Accessing experienced, capable tors have proven that is possible to get the high managers that funders can trust is difficult and yields and to make money, other investors will very expensive. We partner with local small and follow and invest without the type of support medium-size farmers to develop their skills, but provided by AgDevCo. these skills are developed over time, learning from experience, so pay-off is slow. You call this a “slow and difficult” business. What keeps Those are serious barriers. you motivated? How does AgDevCo lessen the impact of these impediments? What motivates the people in AgDevCo is a strong belief that our approach, catalyzing sus- We access concessional capital from govern- tainable agribusiness investment by the private ment donors and private foundations that see sector but generating large benefits for small- the importance of developing agriculture in holder farmers, is the right way forward. We’ve Africa. We invest to reduce the costs and risks been in the game long enough now to begin to facing small and medium-size African farmers; see success – that is, sustainable, profitable ven- we arrange credit facilities that can be accessed tures that would not exist without our involve- by them; we arrange funding for the necessary ment. There is nothing that motivates a team as infrastructure. Our aim is to incubate opportu- well as being part of a novel new approach and nities to the point where third-party capital can seeing that it actually works. be attracted to invest in them on a larger scale. IFC | 79 Are the local people behind On the producer side, the vast majority of people who live in Africa are small farmers. They have these efforts as well? a poor diet, mostly maize, and lack the money Absolutely. In all countries where we are actively to buy protein. By increasing their productiv- involved—Zambia, Mozambique, Tanzania, and ity, small farmers can increase their incomes, Ghana—the host governments and the local improve nutritional intake, and therefore people in the vicinity of the ventures are our improve their health. For example, irrigation strongest supporters. I think the reason is that allows them to double crop and sometimes triple we work closely with people on the ground, and crop. They can diversify their crop mix, and rather than write reports recommending what therefore increase their protein intake. Irrigation should be done, we get on and do it. The irri- also increases resilience to climate volatility. By gated agriculture project in Zambia has involved focusing on removing the constraints to higher lengthy engagement with the local smallholder productivity, production, and sales from Africa farmer community and with local councils and to domestic, regional, and international markets, MPs, as well as the national government. In the we’re addressing the food security issue on both other countries where we’re active, we’ve got the supply side and the demand side. local partners who are excited about our reputa- tion and get things done on the ground to move Is AgDevCo’s approach a repli- quickly. But I don’t want to exaggerate, we’ve only been going four years and this is a long cable model? game. There are a number of other sectors, including forestry and healthcare, where the technical It’s a long game, but the toolkit we’re using in the InfraCo and AgDevCo businesses could be adapted with equally positive food security crisis could last results. There is no question in my mind that decades. What must be done? there’s huge replicability across geographies as well as across sectors. On the consumer side of the food security issue, here’s the problem: a large amount of basic food consumed in urban areas among the rapidly Where would you like to see growing urban population is imported, and the AgDevCo in 10 years? flow is controlled by a small number of distribu- tors who have quite high margins. If we can In 10 years I hope we would have demonstrated increase the production of food within Africa, a model that works better than the other [grant- we’re reducing the transportation costs, and by funded] model, which hasn’t worked very well at increasing the supply we can bring down prices all. I don’t mind if others steal our ideas and copy to urban consumers. us. That’s the point. 80 | IFC.ORG/HANDSHAKE Ag Clusters Agricultural cluster PPP flourishes Agricultural clusters require simultaneous and • “Hub and outgrower” models properly coordinated investment by the public • Linking farmers’ associations to markets and private sectors. The Southern Agricultural Growth Corridor of Tanzania (SAGCOT) is • Irrigated farm blocks with another public-private partnership which aims professional management to boost agricultural productivity in Tanzania SAGCOT is being implemented by a group and the wider region. SAGCOT will promote of private sector agribusiness companies, both clusters of profitable agricultural farming and local and international, in partnership with services businesses, with major benefits for small- the Government of the Republic of Tanzania holder farmers and local communities. and donor organizations. The concept and SAGCOT’s main objective is to make small- investment strategy were developed by a work- holder farming a profitable activity by incentiv- ing group within the Agricultural Council of izing stronger links between smallholders and Tanzania (ACT), with assistance from AgDevCo agribusinesses via: and Prorustica. IFC | 81 Photo © D. Mowbray/CIMMYT Catalytic capital Powering Africa’s agricultural potential Agricultural clusters like the Beira Corridor, matched with catalytic capital, have the potential to transform Africa’s agricultural potential into a reality. By Chris Isaac Zacharia Elises’ maize stands tall on his 1.5 hect- ECA’s milling operations produce maize meal are plot in Catandica, central Mozambique. He for food consumption, starch for a local brewery, expects to harvest over five metric tons this sea- and nutritious bran that is highly sought after by son, which is more than three times the average local livestock farmers such as Guita Poultry and yield in the area. He is linked to the innovative Tsetsera Pigs. These farm businesses, in turn, are extension and marketing company, Empresa de expanding rapidly to take advantage of growing Comercialização Agricola (ECA) which provided local demand for high-quality meat products. him with seeds, fertilizer, and planting advice. All of these agricultural businesses have received One-third of ECA is owned by local farmers, so investment from the Catalytic Fund, the financ- Elises will share in any profits generated from ing arm of a pubic-private partnership launched processing maize and other products for sale to in 2010 called the Beira Agricultural Growth the World Food Programme and a local brewery. Corridor (BAGC). Supporters of the BAGC ECA sits at the middle of an economic cluster include the Mozambican government, local and of related agricultural businesses. The seeds were international agriculture businesses, the United sourced from Phoenix Seeds, a company estab- Kingdom’s Department for International Devel- lished in 2011, which aims to provide reliable opment (DFID), and the Norwegian and Dutch and locally-adapted seeds at an affordable price. governments. 82 | IFC.ORG/HANDSHAKE Ag Clusters Kick-starting clusters interlinked and highly scalable investments that are ready to take on commercial debt and equity. The Catalytic Fund, managed by AgDevCo, When the fund sells its stakes in a project, any aims to kick-start clusters of profitable agricul- profits are recycled into developing new local tural businesses in central Mozambique, in an businesses. area with reasonable infrastructure and rapidly developing new markets. Other investments Replicating results made by the fund to date involve bananas, The Catalytic Fund is proving to be catalytic in avocados, mangos, sesame, sunflower, and honey. more than one sense. Frustrated by the slow pace AgDevCo is also developing irrigated farm of investment in agriculture, and influenced by blocks for use by local farmers, taking advantage what is happening in Mozambique, a number of Central Mozambique’s ample water resources. of African countries including Ethiopia, Ghana, Banks will rarely lend money to start-up or early- Rwanda, and Tanzania are now setting up stage agriculture businesses. Agriculture accounts cluster initiatives and launching catalytic funds. for 30 percent of Africa’s economy, but less than The major donor agencies—the World Bank, 5 percent of bank lending goes into the sector. USAID, DFID, and others—have backed calls The Catalytic Fund steps into the gap, provid- by African governments to do more to develop ing “social venture capital” on attractive terms the local private sector, which is the backbone of to local entrepreneurs who have a solid business any agricultural economy. A promising new pan- plan and the capacity to execute it effectively. African initiative, Grow Africa, endorsed by the The level of subsidy depends on the extent to African Union and the World Economic Forum, which the business guarantees direct benefits for is supporting the agenda. smallholder farmers and local communities. As For a long time people have talked about Africa’s well as capital, the $20 million fund provides agricultural potential; too often expectations hands-on management and business support. of a take-off have failed to materialize. Perhaps Where necessary, it can also help mobilize tar- this time the stars are aligned more favorably. geted grant funds for small farmer development The availability of catalytic capital, the focus on programs. developing profitable clusters of farms in areas By taking out many of the front-end costs with reasonable infrastructure, the renewed and risks of getting a new agriculture business investor interest in agriculture—all are neces- started, the Catalytic Fund aims to unlock large sary conditions for profitable and sustainable volumes of new private investment. Numerous agriculture growth. Replicating these types private equity and debt funds are being raised of approaches across Africa will provide more for African agriculture but there remains a opportunities to entrepreneurs like Elises, stand- severe shortage of investment-ready opportuni- ing proud beside his maize, to become successful ties. Catalytic capital helps create a pipeline of commercial farmers. IFC | 83 Nina Planck launched the modern farmers’ market movement in 1999 when she opened the first farmers’ market in London, which led to the founding of London Farmers’ Mar- What inspired you to start the kets, a U.K. company that now runs farmer’s markets in London in 1999? 18 farmers’ markets. After returning I was looking for fresh, local food and I could to the U.S., she was briefly director not find it. In London supermarkets you can of Greenmarket, the largest group of get snow peas from Zimbabwe, peppers from farmers’ markets in the United States, Holland, and apples from New Zealand, but it is before opening Real Food Markets in hard to find produce that is both fresh and local. New York City in 2006. Her website, No one there had yet revived the traditional www.realfood.info, builds on her producer-only market—that is, run solely by expertise of marketplace distribution producers, with food from a specifically defined of farm-fresh food. geographical area. Why was local food missing from the marketplace? Farmers in England faced the same challenges that all farmers face in the global market for agricultural products and food. They are not big enough to sell to the distributors and retailers. Their produce is not homogeneous or consistent enough—for example, their apples might not Photo © London Farmers’ Markets be large or blemish-free, or their cucumbers are curvy and not straight. Farmers’ prices are also too high for distributors and retailers to get their cut. Margins are notoriously low in this industry. Marketing farmers Interview by Jeanine Delay 84 | IFC.ORG/HANDSHAKE MARKETS How did you first launch the farmers’ ducers need a very consistent supply chain and markets? that requires either a large grower or many small growers which are quite tightly organized, both I looked for a site and began to call farmers. I in terms of logistics and quality control. started with farmers and food producers that I thought would be open to direct marketing— retailing directly to customers through farm What’s your advice for a government stands or other means, and also growing things entity that would like to establish that consumers want rather than what distribu- farmers’ markets? tors or big retailers ask for. It was not widely The appropriate public contribution for farmers’ done in England at that time. That way, I found markets is space, because farmers’ markets don’t 16 producers for my first market, and it was an have the money to compete with real commer- overnight success. cial applications like parking lots. Then public entities should seek a professional management Are the issues faced by small farmers team for the market and provide appropriate in the U.S. similar to those faced by signage and publicity, as well as set standards small farmers elsewhere? so that they know they will be getting a high- quality market. Yes. Many regional cooperatives and other forms of regional coordination are missing in the I believe the management should be private, American food market. The model espoused by whether or not the market is for-profit, as mine American agricultural universities has been for are. Then government officials need to step back farmers to get big or die. I think this should be and let managers do their thing. reversed. We should be encouraging multiple small farms to flourish. Then the role of the manager is key to bridging the gap between farmers and customers? Exactly. This is something that supermarkets were not doing for eaters and that distributors were not doing for farmers. There are too many farmers and they are too dispersed. Food pro- IFC | 85 fast facts The world will need to raise its food production by 60 70 to % to feed more than 9,000,000,000 people by 2050 The amount by which irrigation typically improves farm yields: Double Double Average number of hectares of cultivated land needed to feed one person in 1961: 0.45 Hectares in 2006: 0.22 Hectares $4 billion a year. This could feed Post-harvest grain losses in Sub- Saharan Africa are estimated at 48,000,000 people Only four crops—rice, wheat, maize, and potatoes—provide more than 60 % of human food energy needs. Courtesy Food and Agriculture Organization of the United Nations. 86 | IFC.ORG/HANDSHAKE “ A hunger crisis is not solely an act of God. It is a complex problem of infrastructure, governance, markets, education. These are things we can shape and strengthen. ” —Hillary Rodham Clinton, U.S. Secretary of State IFC | 87 Subscribe: ifc.org/handshake Connect with us: facebook.com/ifcinfrastructure scribd.com/ifcppp handshake@ifc.org twitter.com/ifc_advisory April 2012