Agricultural Marketing Companies as Sources of Smallholder Credit in Eastern and Southern africa docx

A A g g r r i i c c u u l l t t u u r r a a l l M M a a r r k k e e t t i i n n g g C C o o m m p p a a n n i i e e s s a a s s S S o o u u r r c c e e s s o o f f S S m m a a l l l l h h o o l l d d e e r r C C r r e e d d i i t t i i n n E E a a s s t t e e r r n n a a n n d d S S o o u u t t h h e e r r n n A A f f r r i i c c a a Experiences, Insights and Potential Donor Role Eastern and Southern Africa Division December 2003 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without the authorisation of the International Fund for Agricultural Development (IFAD). i The large majority of poor people in Eastern and Southern Africa live in the countryside, and most of the poor people in the rural areas generate a major element of their income and food security from small scale agricultural production. In IFAD parlance, they are smallholders. Notwithstanding several decades of “rural development” their incomes and productivity remain very low – and their food security is unstable. This stagnation in the condition of the majority of the rural population has often been attributed – rightly or wrongly – to adoption of the incorrect development “model” by governments and donors alike. A combination of “top-down” approaches, state management of key economic relations and services, and subsidies contributed – or is thought to have contributed not to development and income growth, but to atrophy and poverty. Structural adjustment – while often not explicitly targeted at rural development models and institutions, and certainly not based upon an assessment of alternative possibilities – contributed to the demolition of much of the key policy and institutional “infrastructure” of rural economic life in the region. The “negative” accomplishments are tangible. The positive ones, less so. Certainly, the elimination of “distortions” has not led quickly to the unfolding of a dense system of new and modern relations and institutions underpinning accelerated development in rural areas. Rather, expansion of per capita income and production has been extremely modest (where achieved at all), and the rural institutional terrain has become curiously de- populated. There is no particular mystery associated with raising production and income among smallholders in Eastern and Southern Africa. Smallholders need access to viable financial services, to well-functioning markets, to relevant technology, and to the land and water that are the bases of their system of production. The question is how they are going to get that access – including who is going to provide it. Generally speaking, direct provision of financial and marketing services, as well as of many technology services, are no longer considered public sector responsibilities. Some services, or some aspects of some services, can be provided by smallholders themselves. But not all. Producer associations and cooperatives have a contribution to make, but are not the entire story by any means. Solutions have to relate to problems, and nineteenth century solutions do not always answer well to twenty-first century problems. In particular, it is essential to explore better relations between smallholders and the larger scale private sector in key areas of service provision (e.g., mobilization and supply of finance, processing, marketing and technology supply). This study arose from our concern that access to production finance among the region’s smallholders is at an incredibly low level – and our assessment that the Preface ii pace of formal rural finance system development will be quite slow in the short term in many countries, particularly with regard to production finance. The challenge was to identify alternative systems of finance that enhance the production and income generating capacity of the region’s smallholders – systems that might contribute more to dealing with the finance famine of rural areas. This report documents what many had already suspected, i.e., that credit under contract farming arrangements is one of the major (indeed, often, the only major) forms of access to production finance among smallholders. Rather more unexpectedly, it concludes that these credits are not necessarily exploitative (although the case of Mozambique suggests that they may be under certain conditions), and that farmers who access them definitely derive concrete benefits. For IFAD, this suggests that we should continue to explore the conditions under which the private sector could find it in its interest (and capacity) to expand these relations with smallholders – and under which smallholders gain significant benefit from them. The phenomenon that Dr. Ruotsi describes is not just “about” finance, it is also about marketing and technology. Contract farming is principally about raw material sourcing from the point of view of processors/exporters – and very much about gaining market outlets from the point of view of the small producer. At the same time, the flow from processor/exporter to farmer is not just finance, it is also a flow of technology to produce specific outputs. In a certain sense, contract farming is a response on the part of both the smallholder and the large scale private sector operator to the poverty of the landscape of economic institutions. It reflects the lack of alternative finance institutions and relations – and technology supply systems. It also reflects the inadequacy of “normal” marketing mechanisms to elicit and absorb production. Probably none of the actors involved sees this as an ideal system. The processors do not particularly wish to be involved in credit operations; and farmers may well wish to feel freer to sell their output at the highest going price. Certainly, IFAD is seeking to create the conditions for institutional development and diversification in which these various functions are “unpacked” and where smallholders have more choice (and, implicitly, bargaining power). In the present conjuncture, however, contract farming arrangements represent one answer to a real problem (or set of problems), and one that should certainly be exploited more. This is not to suggest that these arrangements are simply transitional – and will/should be superseded by more differentiated functional arrangements. The contract farming that is so significant in the region combines elements of both past and future. On the one hand, it reflects the surrounding institutional underdevelopment that forced the development of the contract model in the past – the difference being that in the past the low level of modern institutional iii development reflected the realities of the colonizing “moment”, whereas in the present it reflects the presumed failure of the post-colonial model (of public provision of economic services). On the other hand, it reflects a certain sort of future in which the exigencies of developed country markets will necessitate very close relations between primary producers and processors/traders. From IFAD’s perspective, the challenge is to identify and exploit actually existing options for improving the environment in which smallholders seek to make a better living – as well as to support the institutions and relations that look forward to new and better smallholder relations with evolving markets. This review points to a set of relations that are important in the present, could be made more important, and will be part of the future. What is intriguing about this review is which part of the rural system these arrangements most touch upon. On the whole, they are not about local subsistence crops. They are about higher-value added crops for rich people’s markets. In a world in which only subsidized farmers in rich countries can really make much of a living from producing staple food crops, functioning arrangements that lead smallholders in a different direction are invaluable – and should be supported even as non-essential elements are stripped off in the long-term process of rural institutional development. Gary Howe Director, Eastern and Southern Africa Division, IFAD iv v A A A B B B B B B R R R E E E V V V I I I A A A T T T I I I O O O N N N S S S A A A N N N D D D A A A C C C R R R O O O N N N Y Y Y M M M S S S v v v i i i i i i i i i E E E X X X E E E C C C U U U T T T I I I V V V E E E S S S U U U M M M M M M A A A R R R Y Y Y i i i x x x I. INTRODUCTION 1 A. Background to the Review 1 B. Purpose of Review 2 C. Structure of the Review and Report 3 II. REVIEW OF CONCEPTS AND EARLIER STUDIES ON SMALLHOLDER CREDIT BY MARKETING INTERMEDIARIES 5 III. COUNTRY CONTEXT: KENYA, ZAMBIA AND MOZAMBIQUE 10 A. Kenya 10 B. Zambia 12 C. Mozambique 13 IV. AGRICULTURAL MARKETING COMPANIES AS SOURCES OF SMALLHOLDER CREDIT IN EASTERN AND SOUTHERN AFRICA: REVIEW RESULTS AND CONCLUSIONS 15 A. General Comments 15 B. Input Trade Credit without Interlocking Arrangements 16 C. Company Input Credit under Farming Contracts 18 (i) Providers, Funding, Volumes and Outreach 18 (ii) Mode of Operations 27 (iii) Terms and Conditions 28 (iv) Credit Recovery and Scheme Sustainability 30 (v) Impact on Farmer Households 32 D. Role of Donors and NGOs 33 V. RECOMMENDATIONS FOR POTENTIAL IFAD ROLE 36 LIST OF TABLES T T T a a a b b b l l l e e e 1 1 1 : : : S S S o o o u u u r r r c c c e e e s s s o o o f f f F F F i i i n n n a a a n n n c c c e e e f f f o o o r r r S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r F F F e e e r r r t t t i i i l l l i i i s s s e e e r r r 1 1 1 9 9 9 9 9 9 9 9 9 / / / 2 2 2 0 0 0 0 0 0 0 0 0 S S S u u u p p p p p p l l l i i i e e e s s s i i i n n n Z Z Z a a a m m m b b b i i i a a a 2 2 2 2 2 2 T T T a a a b b b l l l e e e 2 2 2 : : : C C C o o o m m m p p p a a a n n n y y y C C C r r r e e e d d d i i i t t t R R R e e e c c c e e e i i i v v v e e e d d d b b b y y y C C C L L L U U U S S S A A A - - - S S S u u u p p p p p p o o o r r r t t t e e e d d d A A A s s s s s s o o o c c c i i i a a a t t t i i i o o o n n n s s s 2 2 2 6 6 6 ANNEX 1: COMPANY BRIEFS KENYA 41 T ABLE OF CONTENTS Page ANNEXES vi 1 1 1 . . . 1 1 1 K K K e e e n n n y y y a a a T T T e e e a a a D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t A A A g g g e e e n n n c c c y y y L L L t t t d d d : : : S S S u u u c c c c c c e e e s s s s s s f f f u u u l l l a a a n n n d d d L L L a a a r r r g g g e e e C C C o o o m m m p p p a a a n n n y y y C C C r r r e e e d d d i i i t t t O O O p p p e e e r r r a a a t t t i i i o o o n n n 4 4 4 1 1 1 1 1 1 . . . 2 2 2 F F F r r r i i i g g g o o o k k k e e e n n n L L L t t t d d d : : : H H H o o o r r r t t t i i i c c c u u u l l l t t t u u u r r r e e e C C C o o o n n n t t t r r r a a a c c c t t t F F F a a a r r r m m m i i i n n n g g g w w w i i i t t t h h h G G G e e e n n n u u u i i i n n n e e e S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r s s s 4 4 4 4 4 4 1 1 1 . . . 3 3 3 E E E a a a s s s t t t A A A f f f r r r i i i c c c a a a n n n G G G r r r o o o w w w e e e r r r s s s L L L t t t d d d : : : V V V e e e g g g e e e t t t a a a b b b l l l e e e s s s , , , F F F r r r u u u i i i t t t s s s a a a n n n d d d F F F l l l o o o w w w e e e r r r s s s t t t o o o E E E U U U M M M a a a r r r k k k e e e t t t s s s 4 4 4 7 7 7 1 1 1 . . . 4 4 4 H H H o o o r r r t t t i i i c c c u u u l l l t t t u u u r r r a a a l l l F F F a a a r r r m m m e e e r r r s s s a a a n n n d d d E E E x x x p p p o o o r r r t t t e e e r r r s s s L L L t t t d d d : : : S S S m m m a a a l l l l l l E E E x x x p p p o o o r r r t t t e e e r r r i i i n n n F F F r r r u u u i i i t t t s s s a a a n n n d d d V V V e e e g g g e e e t t t a a a b b b l l l e e e s s s 4 4 4 9 9 9 1 1 1 . . . 5 5 5 K K K e e e n n n y y y a a a N N N u u u t t t L L L t t t d d d : : : E E E f f f f f f e e e c c c t t t s s s o o o f f f C C C o o o m m m p p p e e e t t t i i i t t t i i i o o o n n n w w w i i i t t t h h h o o o u u u t t t R R R u u u l l l e e e s s s 5 5 5 0 0 0 1 1 1 . . . 6 6 6 K K K e e e n n n y y y a a a S S S u u u g g g a a a r r r C C C o o o m m m p p p a a a n n n i i i e e e s s s : : : A A A C C C a a a s s s e e e o o o f f f U U U n n n s s s u u u c c c c c c e e e s s s s s s f f f u u u l l l C C C r r r e e e d d d i i i t t t a a a n n n d d d S S S e e e r r r v v v i i i c c c e e e D D D e e e l l l i i i v v v e e e r r r y y y 5 5 5 2 2 2 1 1 1 . . . 7 7 7 K K K e e e n n n y y y a a a S S S e e e e e e d d d C C C o o o m m m p p p a a a n n n y y y L L L t t t d d d : : : A A A L L L a a a r r r g g g e e e - - - s s s c c c a a a l l l e e e P P P r r r o o o d d d u u u c c c e e e r r r a a a n n n d d d D D D i i i s s s t t t r r r i i i b b b u u u t t t o o o r r r o o o f f f S S S e e e e e e d d d s s s 5 5 5 5 5 5 1 1 1 . . . 8 8 8 B B B A A A T T T : : : C C C o o o m m m p p p r r r e e e h h h e e e n n n s s s i i i v v v e e e I I I n n n p p p u u u t t t a a a n n n d d d S S S e e e r r r v v v i i i c c c e e e P P P a a a c c c k k k a a a g g g e e e s s s 5 5 5 7 7 7 1 1 1 . . . 9 9 9 W W W . . . E E E . . . T T T i i i l l l l l l e e e y y y L L L t t t d d d : : : A A A d d d v v v a a a n n n c c c e e e s s s t t t h h h r r r o o o u u u g g g h h h B B B u u u y y y i i i n n n g g g A A A g g g e e e n n n t t t s s s i i i n n n F F F i i i s s s h h h T T T r r r a a a d d d i i i n n n g g g 5 5 5 9 9 9 1 1 1 . . . 1 1 1 0 0 0 H H H o o o n n n e e e y y y C C C a a a r r r e e e A A A f f f r r r i i i c c c a a a L L L t t t d d d : : : F F F r r r o o o m m m D D D o o o n n n o o o r r r L L L o o o a a a n n n s s s t t t o o o P P P i i i l l l o o o t t t i i i n n n g g g C C C o o o m m m m m m e e e r r r c c c i i i a a a l l l C C C r r r e e e d d d i i i t t t s s s 6 6 6 0 0 0 ANNEX 2: COMPANY BRIEFS ZAMBIA 63 2 2 2 . . . 1 1 1 D D D u u u n n n a a a v v v a a a n n n t t t Z Z Z a a a m m m b b b i i i a a a L L L t t t d d d : : : A A A c c c t t t i i i v v v e e e C C C o o o m m m p p p a a a n n n y y y C C C r r r e e e d d d i i i t t t i i i n n n C C C o o o t t t t t t o o o n n n S S S e e e c c c t t t o o o r r r 6 6 6 3 3 3 2 2 2 . . . 2 2 2 C C C h h h e e e e e e t t t a a a h h h Z Z Z a a a m m m b b b i i i a a a L L L t t t d d d : : : C C C o o o n n n t t t r r r a a a c c c t t t i i i n n n g g g P P P a a a p p p r r r i i i k k k a a a F F F a a a r r r m m m e e e r r r s s s i i i n n n Z Z Z a a a m m m b b b i i i a a a 6 6 6 5 5 5 2 2 2 . . . 3 3 3 B B B i i i m m m z z z i i i L L L t t t d d d / / / E E E n n n v v v i i i r r r o o o - - - O O O i i i l l l & & & C C C o o o l l l o o o r r r a a a n n n t t t s s s / / / Z Z Z A A A H H H V V V A A A C C C : : : P P P r r r o o o b b b l l l e e e m m m s s s i i i n n n S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r C C C o o o n n n t t t r r r a a a c c c t t t i i i n n n g g g 6 6 6 7 7 7 2 2 2 . . . 4 4 4 A A A g g g r r r i i i f f f l l l o o o r r r a a a L L L t t t d d d : : : I I I n n n t t t e e e n n n s s s i i i v v v e e e C C C o o o n n n t t t r r r a a a c c c t t t F F F a a a r r r m m m i i i n n n g g g w w w i i i t t t h h h E E E l l l i i i t t t e e e S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r s s s 6 6 6 9 9 9 2 2 2 . . . 5 5 5 T T T o o o b b b a a a c c c c c c o o o A A A s s s s s s o o o c c c i i i a a a t t t i i i o o o n n n o o o f f f Z Z Z a a a m m m b b b i i i a a a : : : I I I n n n p p p u u u t t t A A A d d d v v v a a a n n n c c c e e e s s s t t t o o o 2 2 2 0 0 0 0 0 0 S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r s s s 7 7 7 2 2 2 2 2 2 . . . 6 6 6 O O O m m m n n n i i i a a a S S S m m m a a a l l l l l l - - - S S S c c c a a a l l l e e e L L L t t t d d d : : : G G G o o o v v v e e e r r r n n n m m m e e e n n n t t t I I I n n n t t t e e e r r r f f f e e e r r r e e e n n n c c c e e e i i i n n n F F F e e e r r r t t t i i i l l l i i i s s s e e e r r r M M M a a a r r r k k k e e e t t t s s s 7 7 7 4 4 4 2 2 2 . . . 7 7 7 C C C M M M R R R F F F a a a r r r m m m : : : S S S u u u c c c c c c e e e s s s s s s f f f u u u l l l S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r C C C r r r e e e d d d i i i t t t b b b y y y C C C o o o m m m m m m e e e r r r c c c i i i a a a l l l F F F a a a r r r m m m e e e r r r 7 7 7 6 6 6 ANNEX 3: COMPANY BRIEFS MOZAMBIQUE 79 3 3 3 . . . 1 1 1 C C C o o o m m m p p p a a a n n n h h h i i i a a a A A A l l l g g g o o o d d d o o o e e e i i i r r r a a a d d d e e e N N N a a a m m m p p p u u u l l l a a a S S S A A A R R R L L L : : : C C C o o o t t t t t t o o o n n n I I I n n n p p p u u u t t t C C C r r r e e e d d d i i i t t t o o o n n n a a a C C C o o o n n n c c c e e e s s s s s s i i i o o o n n n 7 7 7 9 9 9 3 3 3 . . . 2 2 2 J J J F F F S S S / / / S S S O O O D D D A A A N N N : : : C C C o o o n n n t t t r r r a a a c c c t t t F F F a a a r r r m m m i i i n n n g g g o o o f f f C C C o o o t t t t t t o o o n n n a a a n n n d d d T T T o o o b b b a a a c c c c c c o o o i i i n n n F F F o o o u u u r r r P P P r r r o o o v v v i i i n n n c c c e e e s s s 8 8 8 1 1 1 3 3 3 . . . 3 3 3 S S S o o o c c c i i i e e e d d d a a a d d d e e e A A A l l l g g g o o o d d d o o o e e e i i i r r r a a a d d d e e e N N N a a a m m m p p p u u u l l l a a a ( ( ( S S S A A A N N N A A A M M M ) ) ) : : : N N N e e e w w w E E E n n n t t t r r r a a a n n n t t t t t t o o o G G G i i i n n n n n n i i i n n n g g g a a a n n n d d d C C C o o o n n n t t t r r r a a a c c c t t t F F F a a a r r r m m m i i i n n n g g g 8 8 8 3 3 3 3 3 3 . . . 4 4 4 C C C h h h e e e e e e t t t a a a h h h M M M o o o z z z a a a m m m b b b i i i q q q u u u e e e L L L t t t d d d : : : A A A D D D o o o n n n o o o r r r / / / N N N G G G O O O - - - S S S u u u p p p p p p o o o r r r t t t e e e d d d F F F a a a i i i l l l u u u r r r e e e i i i n n n C C C o o o n n n t t t r r r a a a c c c t t t F F F a a a r r r m m m i i i n n n g g g 8 8 8 4 4 4 3 3 3 . . . 5 5 5 E E E x x x p p p o o o r r r t t t M M M a a a r r r k k k e e e t t t i i i n n n g g g C C C o o o . . . L L L t t t d d d : : : W W W h h h y y y M M M a a a r r r k k k e e e t t t i i i n n n g g g C C C o o o m m m p p p a a a n n n y y y A A A v v v o o o i i i d d d s s s C C C o o o n n n t t t r r r a a a c c c t t t i i i n n n g g g a a a n n n d d d I I I n n n p p p u u u t t t C C C r r r e e e d d d i i i t t t 8 8 8 6 6 6 3 3 3 . . . 6 6 6 A A A P P P S S S - - - A A A g g g r r r o o o I I I n n n d d d u u u s s s t t t r r r i i i e e e s s s L L L d d d a a a : : : I I I n n n v v v e e e s s s t t t m m m e e e n n n t t t s s s o o o n n n A A A g g g r r r o o o - - - P P P r r r o o o d d d u u u c c c t t t i i i o o o n n n a a a n n n d d d vii M M M a a a r r r k k k e e e t t t i i i n n n g g g i i i n n n N N N a a a m m m p p p u u u l l l a a a P P P r r r o o o v v v i i i n n n c c c e e e 8 8 8 8 8 8 3 3 3 . . . 7 7 7 M M M o o o z z z a a a m m m b b b i i i c c c a a a n n n S S S u u u g g g a a a r r r I I I n n n d d d u u u s s s t t t r r r y y y : : : U U U n n n s s s u u u s s s t t t a a a i i i n n n a a a b b b l l l e e e P P P i i i l l l o o o t t t i i i n n n g g g w w w i i i t t t h h h S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r O O O u u u t t t g g g r r r o o o w w w e e e r r r s s s 8 8 8 9 9 9 3 3 3 . . . 8 8 8 V V V & & & M M M G G G r r r a a a i i i n n n C C C o o o . . . : : : O O O f f f f f f e e e r r r s s s P P P r r r o o o d d d u u u c c c e e e B B B u u u y y y i i i n n n g g g A A A d d d v v v a a a n n n c c c e e e s s s – – – A A A n n n E E E x x x c c c e e e p p p t t t i i i o o o n n n t t t o o o t t t h h h e e e R R R u u u l l l e e e 9 9 9 1 1 1 A NNEX 4: LIST OF REFERENCES 93 A NNEX 5: LIST OF KEY CONTACTS 95 viii A A A F F F R R R A A A C C C A A A A A A f f f r r r i i i c c c a a a n n n R R R u u u r r r a a a l l l a a a n n n d d d A A A g g g r r r i i i c c c u u u l l l t t t u u u r r r a a a l l l C C C r r r e e e d d d i i i t t t A A A s s s s s s o o o c c c i i i a a a t t t i i i o o o n n n A A A K K K F F F E E E D D D A A A g g g a a a K K K h h h a a a n n n F F F u u u n n n d d d f f f o o o r r r E E E c c c o o o n n n o o o m m m i i i c c c D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t B B B A A A T T T B B B r r r i i i t t t i i i s s s h h h A A A m m m e e e r r r i i i c c c a a a n n n T T T o o o b b b a a a c c c c c c o o o C C C A A A N N N A A A M M M C C C o o o m m m p p p a a a n n n h h h i i i a a a A A A l l l g g g o o o d d d o o o e e e i i i r r r a a a d d d e e e N N N a a a m m m p p p u u u l l l a a a S S S A A A R R R L L L C C C L L L U U U S S S A A A C C C o o o o o o p p p e e e r r r a a a t t t i i i v v v e e e L L L e e e a a a g g g u u u e e e o o o f f f t t t h h h e e e U U U n n n i i i t t t e e e d d d S S S t t t a a a t t t e e e s s s o o o f f f A A A m m m e e e r r r i i i c c c a a a E E E U U U E E E u u u r r r o o o p p p e e e a a a n n n U U U n n n i i i o o o n n n F F F A A A O O O F F F o o o o o o d d d a a a n n n d d d A A A g g g r r r i i i c c c u u u l l l t t t u u u r r r e e e O O O r r r g g g a a a n n n i i i z z z a a a t t t i i i o o o n n n o o o f f f t t t h h h e e e U U U n n n i i i t t t e e e d d d N N N a a a t t t i i i o o o n n n F F F F F F P P P I I I F F F u u u n n n d d d o o o d d d e e e F F F o o o m m m e e e n n n t t t o o o d d d e e e P P P e e e q q q u u u e e e n n n a a a I I I n n n d d d u u u s s s t t t r r r i i i a a a – – – S S S m m m a a a l l l l l l I I I n n n d d d u u u s s s t t t r r r y y y D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t F F F u u u n n n d d d F F F R R R A A A F F F e e e r r r t t t i i i l l l i i i s s s e e e r r r C C C r r r e e e d d d i i i t t t P P P r r r o o o g g g r r r a a a m m m m m m e e e o o o f f f Z Z Z a a a m m m b b b i i i a a a G G G D D D P P P G G G r r r o o o s s s s s s D D D o o o m m m e e e s s s t t t i i i c c c P P P r r r o o o d d d u u u c c c t t t G G G N N N P P P G G G r r r o o o s s s s s s N N N a a a t t t i i i o o o n n n a a a l l l P P P r r r o o o d d d u u u c c c t t t H H H F F F E E E H H H o o o r r r t t t i i i c c c u u u l l l t t t u u u r r r a a a l l l F F F a a a r r r m m m e e e r r r s s s a a a n n n d d d E E E x x x p p p o o o r r r t t t e e e r r r s s s L L L t t t d d d H H H I I I P P P C C C H H H i i i g g g h h h l l l y y y I I I n n n d d d e e e b b b t t t e e e d d d P P P o o o o o o r r r C C C o o o u u u n n n t t t r r r y y y I I I D D D S S S I I I n n n s s s t t t i i i t t t u u u t t t e e e o o o f f f D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t S S S t t t u u u d d d i i i e e e s s s I I I F F F A A A D D D I I I n n n t t t e e e r r r n n n a a a t t t i i i o o o n n n a a a l l l F F F u u u n n n d d d f f f o o o r r r A A A g g g r r r i i i c c c u u u l l l t t t u u u r r r a a a l l l D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t K K K C C C C C C K K K e e e n n n y y y a a a C C C o o o o o o p p p e e e r r r a a a t t t i i i v v v e e e C C C r r r e e e a a a m m m e e e r r r i i i e e e s s s K K K E E E S S S K K K e e e n n n y y y a a a n n n S S S h h h i i i l l l l l l i i i n n n g g g K K K S S S B B B K K K e e e n n n y y y a a a S S S u u u g g g a a a r r r B B B o o o a a a r r r d d d K K K T T T D D D A A A K K K e e e n n n y y y a a a T T T e e e a a a D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t A A A g g g e e e n n n c c c y y y M M M A A A D D D E E E R R R M M M i i i n n n i i i s s s t t t r r r y y y o o o f f f A A A g g g r r r i i i c c c u u u l l l t t t u u u r r r e e e a a a n n n d d d R R R u u u r r r a a a l l l D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t M M M F F F I I I M M M i i i c c c r r r o o o f f f i i i n n n a a a n n n c c c e e e I I I n n n s s s t t t i i i t t t u u u t t t i i i o o o n n n M M M T T T M M M e e e t t t i i i c c c a a a l l l / / / M M M e e e t t t i i i c c c a a a i i i s s s N N N G G G O O O N N N o o o n n n - - - g g g o o o v v v e e e r r r n n n m m m e e e n n n t t t a a a l l l O O O r r r g g g a a a n n n i i i s s s a a a t t t i i i o o o n n n P P P A A A M M M A A A A A A g g g r r r i i i c c c u u u l l l t t t u u u r r r a a a l l l M M M a a a r r r k k k e e e t t t S S S u u u p p p p p p o o o r r r t t t P P P r r r o o o g g g r r r a a a m m m m m m e e e S S S A A A C C C C C C O O O S S S a a a v v v i i i n n n g g g s s s a a a n n n d d d C C C r r r e e e d d d i i i t t t C C C o o o o o o p p p e e e r r r a a a t t t i i i v v v e e e S S S A A A N N N A A A M M M S S S o o o c c c i i i e e e d d d a a a d d d e e e A A A l l l g g g o o o d d d o o o e e e i i i r r r a a a d d d e e e N N N a a a m m m p p p u u u l l l a a a S S S H H H E E E M M M P P P S S S m m m a a a l l l l l l h h h o o o l l l d d d e e e r r r E E E n n n t t t e e e r r r p p p r r r i i i s s s e e e a a a n n n d d d M M M a a a r r r k k k e e e t t t i i i n n n g g g P P P r r r o o o g g g r r r a a a m m m m m m e e e T T T A A A Z Z Z T T T o o o b b b a a a c c c c c c o o o A A A s s s s s s o o o c c c i i i a a a t t t i i i o o o n n n o o o f f f Z Z Z a a a m m m b b b i i i a a a U U U S S S A A A I I I D D D U U U n n n i i i t t t e e e d d d S S S t t t a a a t t t e e e s s s A A A g g g e e e n n n c c c y y y f f f o o o r r r I I I n n n t t t e e e r r r n n n a a a t t t i i i o o o n n n a a a l l l D D D e e e v v v e e e l l l o o o p p p m m m e e e n n n t t t U U U S S S D D D U U U n n n i i i t t t e e e d d d S S S t t t a a a t t t e e e s s s D D D o o o l l l l l l a a a r r r Z Z Z A A A H H H V V V A A A C C C Z Z Z a a a m m m b b b i i i a a a n n n A A A s s s s s s o o o c c c i i i a a a t t t i i i o o o n n n f f f o o o r r r H H H i i i g g g h h h V V V a a a l l l u u u e e e C C C r r r o o o p p p s s s Z Z Z A A A T T T A A A C C C Z Z Z a a a m m m b b b i i i a a a n n n A A A g g g r r r i i i b b b u u u s s s i i i n n n e e e s s s s s s T T T e e e c c c h h h n n n i i i c c c a a a l l l A A A s s s s s s i i i s s s t t t a a a n n n c c c e e e C C C e e e n n n t t t r r r e e e ABBREVIATIONS AND ACRONYMS [...]... the increasing role of private marketing and processing companies in the provision of agricultural credit in Africa has been recognised, very little accurate information on these operations is currently available In order to gain a better understanding of the new financial and commercial relationships established between smallholders and market intermediaries, and in so doing develop a better of the... the attempts to increase the outreach and improve the performance of company -credit based agricultural schemes in East and Southern Africa xii AGRICULTURAL MARKETING COMPANIES AS SOURCES OF SMALLHOLDER CREDIT IN EASTERN AND SOUTHERN AFRICA: EXPERIENCES, INSIGHTS AND POTENTIAL DONOR ROLE1 I A INTRODUCTION Background to the Review 1 IFAD’s Strategic Framework 2002 – 2006, titled “Enabling the Rural Poor... activities and relevance of non-financial institutions in the provision of agricultural credit in Eastern and Southern Africa, the current Review aimed to provide answers to the following key research questions: How important are non-financial institutions as sources of agricultural credit to smallholders in the Region? What type of institutions are the most active and important as providers of these... Agricultural Marketing Companies as Sources of Smallholder Credit in Eastern and Southern Africa aims to enhance IFAD’s understanding of a range of issues relative to these two strategic areas, and so to assist IFAD and its partner governments to develop projects and programmes which enable poor farmers to better access financial services and markets 2 In order to assist governments to design appropriate and. .. to smallholders (in- kind or financial, recovered at sale), and to make an accurate assessment of their outreach and relevance in the rural areas 4 In recent years, ever-increasing numbers of poor farmers in Eastern and Southern Africa are developing new forms of commercial relations with input 1 This report was prepared by consultant Jorma Ruotsi, under the guidance and supervision of Edward Heinemann... willing sellers within the smallholder community Another related threat to the sustainability of contract farming and input credit schemes is linked to the problems of law enforcement in contract farming in East and Southern Africa and the obvious lack of an appropriate code of conduct among both the companies and farmers in all the reviewed countries Concerning the terms and impact of the company credit, ... functioning of rural finance markets in their entirety, the current Review focuses on examining the agricultural credit operations of marketing and processing companies in Kenya, Zambia and Mozambique It assesses their mode of operations; the terms of the credit provided and related commodity prices offered; the characteristics of the provider companies and their clientele; the credit volumes, outreach and. .. seasonal inputs to smallholder producers on credit In most countries the response has been poor, and most microfinance institutions and other newly established financial service providers have an urban orientation and seldom provide funding for smallholder production In this situation private agricultural marketing companies have become dominant providers of smallholder input credit in SubSaharan Africa. .. community-based financial arrangements and development credit institutions have a very limited outreach in rural areas This institutional situation makes it very difficult for the financial sector to respond to the increasing demands for rural financial services in the country and today, as in the case of Zambia, practically all seasonal agricultural credit to smallholders is provided by marketing and processing... processing companies under interlocking arrangements 6 For a detailed assessment of Mozambique’s rural finance sector, see IFAD: “Rural Finance Support Programme Appraisal Report”, Working Paper 1, 2003 14 IV A AGRICULTURAL MARKETING COMPANIES AS SOURCES OF SMALLHOLDER CREDIT IN EASTERN AND SOUTHERN AFRICA: REVIEW RESULTS AND CONCLUSIONS General Comments 44 The present Review showed that credit by agri-marketing . AND ACRONYMS ix While the increasing role of private marketing and processing companies in the provision of agricultural credit in Africa has. Mozambique 13 IV. AGRICULTURAL MARKETING COMPANIES AS SOURCES OF SMALLHOLDER CREDIT IN EASTERN AND SOUTHERN AFRICA: REVIEW RESULTS AND CONCLUSIONS 15