Steve Harris - Market Linkages Specialist, TechnoServe

Steve Harris - Market Linkages Specialist, TechnoServe
Steve Harris joined TechnoServe in 1997 with technical
support responsibilities in identifying high-value opportunities
and profitable market linkages for TechnoServe clients.
Initially his responsibilities covered all TechnoServe
programmes in both Africa and Latin America, but these days
his work is more focused on support to the Africa Division
and he leads TechnoServe’s Horticultural Team.
His current focus is on providing expert support in banana
production and marketing to Technoserve’s smallholder
banana and matooke development programmes in East
Africa.
He is also leading Technoserve’s support programme for the
launch of large-scale banana exports from Mozambique.
He recently provided expert assistance to the East Africa
Banana Strategy Design work
Steve co-authored a detailed study in 2006, “Financing the
Development of Small and Medium Agribusiness in
Southern Africa”.
Steve has almost 30 years experience working commercially
and developmentally as a consultant on agricultural projects
in over 60 countries.
Carl Cervone, Regional Coffee Advisor, TechnoServe, Kenya
Has been leading TechnoServe’s entry
into the Kenya coffee sector and
providing strategic advice to the Tanzania
coffee program since early 2006.
He was the founding director of New
Assets, Inc., a non-profit that offers
financial and advisory services to sociallyminded entrepreneurs in developing
countries
Worked in Tanzania as the managing
director of MESO Microfinance.
Mr. Cervone holds a BA in environmental
science from Wesleyan University, and a
certificate in microfinance management
from the Boulder Institute.
Customised technical assistance and
diminished financial risk
Presentation at the 3rd AFRACA Agribanks Forum
“Africa Value Chain Financing”
October 16-18, 2007
Nairobi, Kenya
FINANCING THE DEVELOPMENT OF SMALL AND MEDIUM-SCALE
AGRIBUSINESS IN SOUTHERN AFRICA
A study prepared for the Rockefeller Foundation (December 2006)
Objectives:
Identify sources of finance available to small and medium scale enterprises (SME’s) in the
agribusiness sector in Southern Africa;
Investigate reasons for any financing gaps;
Determine how best to fill these gaps, and stimulate creation and development of
agribusinesses that improve the lives of the rural poor.
BUSINESS MODELS THAT ENHANCE SMALL FARMER INCOMES
1. Processing businesses: Providing a stable market for farmers and adding value in -country
Small-scale farmers
Agro-processing plant
Regional and Export food
products market
2. Supply businesses: Improved seed, access to fertiliser and pr oduction technology
Seed, fertiliser, technology
supplier
Small-scale farmers
Increased production
efficiency and farmer
income
Cheaper food more readily
available
3. Outgrower model: Small farmers and nucleus business are interdependent
Nucleus Business
Small-scale farmers
Business usually contracts
farmers as producers,
supplying inputs, training,
technical advice and point
of sale
Farmers are integrated
into production, processing
and marketing chain
INVESTING IN MALAWI’S SEED INDUSTRY VALUE CHAIN
PUBLIC
SECTOR
PRIVATE SECTOR
Investment Targets
Indirect Investment Targets
Impact from Investment
Contract
Growers
OPV
Breeding
Release
Multiplication
Treatment
Sales
Cropping
CONSUMER
IMPACT
F1
Clean
Treat
Pack
Food
Security
Contract
Growers
MoA,
CGIAR,
NARI
FSE
Seed Multiplier Businesses
Input
Suppliers
IMPACT ON
ALL
FARMERS
Increased
Yield &
Quality &
Income
SOUTHERN AFRICA – SEVERE FINANCING GAPS IN AGRIBUSINESS
Stage of Business
Development
START-UP
EARLY-STAGE
EXPANSION
EXPANSION
MATURE
Example Business
Net Assets
NIL
US$0.5 to1m
US$2m
US$10m+
Asset Finance
Needs
Financing Gap
($50-250K)
Financing Gap
($100K-1m)
PE Funds
Commercial
Investors
PE Funds,
Banks/Ins, Stock
Exchanges
Working Capital
Needs
Financing Gap
($50-100K)
Financing Gap
(Some
Receivables
Financing)
Vendor/
Receivables
Financing,
Banks
Vendor/
Receivables
Financing,
Banks
WHY CAN’T AGRIBUSINESS SMEs GET ACCESS TO FINANCE FOR
START-UPS AND EARLY STAGE EXPANSIONS?
Problem
Shortage of risk
capital
Contributing factors
• Banks are committed to short-term, highly
collateralised debt for young companies;
• Banks have trouble understanding agribusiness;
• Made worse by lack of equity and quasi-equity risk
capital;
• Especially noticeable in the agribusiness sector.
Poor business
management
capacity
•Typical agribusiness SMEs lack know-how to manage their
businesses efficiently;
•They often lack appropriate governance, controls and discipline;
•They often lack a detailed Business Plan;
•All of which are potent barriers when looking to access finance.
CONCLUSIONS FROM THE STUDY
1.
African economic development = agribusiness development;
2.
Finance for large expansions and mature companies – plenty of supply but lack
of investees;
3.
If we don’t provide a solution for start-ups and early-stage expansions, there
won’t be any graduates looking for large expansion and mature financing;
4.
There needs to be more equity or quasi-equity financing made available;
5.
Financing risk is greatly reduced when accompanied by customised technical
assistance to improve business management capacity;
6.
A new approach is needed that combines appropriate financing with customised
technical assistance to improve business management capacity;
7.
We recommend a new fund be created to provide such financing and be tightly
coupled with grant-funded customised technical assistance.
EXAMPLE: TECHNOSERVE AND THE TANZANIAN COFFEE INDUSTRY
Opportunity
• Transition farmers from commodity to
highly profitable speciality coffee
• Requires investment in centralized
processing facilities – “wet mills”
• Processing infrastructure and farmer
organisation virtually nonexistent in 2001
FIRST, NEW ORGANIZATIONAL STRUCTURES WERE DEVELOPED
TechnoServe’s Strategy
• Support a service provider to provide marketing and financial linkages to farmer groups
• Identify and organize farmer groups with potential to produce quality
• Assist groups to invest in improving quality and production
MARKETS
Group
Group
Group
FINANCE
QUALITY
PRODUCTION
Farmers
Farmers
Farmers
THEN, A VARIETY OF UNCONVENTIAL FINANCING ARRANGEMENTS
WERE USED TO IMPROVE QUALITY
Product
Long-term
financing
Short-term
financing
Securities
• Fixed assets
• Marketing agreements
• Guarantee funds
• Warehouse receipts
• Marketing agreements
• Price-risk management
Outputs
• Centralized processing
infrastructure for
improving coffee quality
• Working capital to fund
processing operations
• Advance payments to
attract farmers
• Agro-input credit to
help farmers increase
production
CUSTOMISED TECHNICAL ASSISTANCE DIMINISHED FINANCIAL RISK
Financier
Local bank for
working capital
Challenge
• Unconventional borrowing
needs of client
• Didn’t understand business
model, market risks, etc.
• Didn’t see coffee as full
collateral
Technical assistance requirement
• Significant initial support to bank and client
securing collateral, developing business plan,
monitoring performance and financials
• Minimal ongoing support once creditworthiness
and strength of business model proven
Soft loan
provider for
CAPEX
• No presence on-the-ground
• Looked to TNS for due diligence function
• Cautious of local risks, little
experience in Africa
• Ongoing TNS operational assistance to ensure
that loan is used properly until creditworthiness
established
Exporter for
working capital
and CAPEX
• Commits client to future
coffee deliveries (potentially
restricting marketing options)
• Saw TNS as honest broker
• Ongoing TNS operational assistance to ensure
that volume and quality commitments met
RESULTS: SALES HAVE INCREASED FROM $300,000 TO OVER $3
MILLION IN 5 YEARS, IMPACTING MORE THAN 10,000 SMALL FARMERS
KILICAFE sales 2001-2006 – Financial year May-April
$US Millions
4.0
3.5
3.0
2.5
Specialty sales
2.0
1.5
1.0
0.5
0.0
2001
2002
2003
2004
2005
2006