On 7 December 2016, we organised a learning event at the International Fund for Agricultural Development (IFAD) headquarters in Rome to share the first findings of the Partnering for Value project, a project focused on brokering Public-Private-Producer Partnerships (4Ps) in agriculture.
In the past years, we have seen a revival of interest in the private sector as a partner in agricultural development. This interest has often taken shape in PPPs – Public-Private Partnerships – as an instrument in which the public and private sector join forces in solving bottlenecks for value chain development. At the same time, there is a growing recognition that smallholder agriculture will have to play a much greater role in the agricultural sector in providing the supply response needed to ensure global food security. Recent trends seem to confirm that the 500 million family farms around the developing world constitute the biggest untapped market for the private sector. This represents a new opportunity to address poverty reduction through market solutions.
For the Partnering for Value project, IFAD and SNV have added a fourth P to the PPPs: Public-Private-Producer Partnerships (4Ps). The 4P approach is used as a “pull” mechanism to finance business plans jointly submitted by private companies and farmers organisations in which they propose to enter in a partnership agreement where both parties take risks, invest and share the benefits. For these 4P business plans, IFAD financing (via local value chain programs) focuses on the delivery of public or semi-public goods that will not be funded by the private sector company otherwise, and that is necessary to fill the financing gap of viable business plans. Using public resources is justified to address a “market failure” where the perceived high risks and transaction costs of working with small producers are preventing private companies from starting market-based business relationships.
This 4P approach has shown promising results so far in existing IFAD value chain programs, but there are still significant challenges in practice. For example, government’s management systems are not well equipped to respond to private sector’s needs; there is distrust between public, private and producer actors; or financial resources are lacking. Given these challenges, IFAD has identified the need for a 4P brokerage mechanism to support the emergence of pro-poor 4Ps on a more systematic basis. The Partnering for Value program, implemented by SNV, has been addressing this need by piloting 4P brokerage mechanisms within IFAD-funded value chain programmes in order to assess and validate the viability of this approach. During the project’s implementation (February 2015 - March 2018), the 4P brokering approach is being tested in different contexts: El Salvador, Senegal, Uganda, Mozambique and Vietnam.
After almost two years since the start of the programme, SNV advisors in the concerned countries have brokered over 20 4P business cases for further implementation. SNV advisors have either served as brokers themselves or hired and supported independent brokers in their 4P brokering.
The event on 7 December was aimed at sharing the first findings, discussing learnings and further promoting the 4P concept. It was open to a wider audience interested in working with the private sector for agricultural development. Moreover, IFAD country offices also actively participated through a virtual connection.
The event started off with introductory presentations of Adolfo Brizzi (Director PTA, IFAD), Marco Camagni (Senior Technical Specialist PTA, IFAD) and Nico Janssen (Project Manager, SNV) shortly discussing the potential benefits of 4Ps and the complementary roles the public sector, agribusinesses and producers can play in agricultural development. This was followed by an interactive talk show based on concrete experiences from SNV’s 4P cases in the five project countries. This talk show was centred on four key learnings from the project so far, and presented by 4P partners in the field. The four main lessons were:
Market opportunity as driver
In all cases, it has become clear that a successful 4P can only start from a real market demand. This means that there is a need to focus on a market ‘pull’ instead of a market ‘push’. This was also emphasised by Ms. Chau Kim Yen, CEO of Betrimex, a coconut processing company in Vietnam. In the past years, Betrimex noticed a growing demand for organic coconuts from the US and Europe, and has been wanting to change to organic production methods. Through the 4P, Betrimex has been able to develop a raw material zone necessary for organic coconut production, together with small scale producers. The joint effort was realised by close cooperation and the formulation of joint objectives.
“SNV suggested that Betrimex could set up its connection with representatives of farmer groups, instead of working directly with individual farmers,” Ms. Yen explains, “This has helped Betrimex to reduce time and management costs, while encouraging farmers to build their capacity and skills in production and group management.” The high level of trust has been key for investing in the change of the complete production process. As Ms. Yen summarizes, “the 4P partnership has meant a lot to Betrimex, as it has encouraged us to continue our organic coconut development programme and comply with global standards.”
Careful selection of partners - necessary for success
Selecting the right partners for a 4P takes careful consideration. Experience from all countries has shown that not just any partner is suitable to work in a 4P construction, but that due diligence and well thought-through selection criteria are necessary to build real sustainable partnerships. For example, stakeholders of all countries agreed that experience in working with small scale producers (for companies) and a shown strong commitment (from all partners) are minimum criteria for potential partners to become eligible for a 4P.
Ana Patricia de Marín, Director of the Los Fonchanos milk cooperative in El Salvador, explained: “Petacones has been important to us in improving our production methods. This cheese factory, as the private partner in the 4P, committed itself to investing in installations and training for our cooperative in order to improve the quantity and quality of the milk production.” So far, this strong relationship and investment in the 4P has led to a 70% production increase.
The added value of an independent broker
Abbey Ayanzo, business consultant of PALM Uganda, elaborated on his role as an independent broker for 4Ps in Uganda. During the Partnering for Value project, the dilemma of working with either a broker from the public sector or a completely independent broker has been often raised. Experience from the project seems to point at the added value of working with independent brokers; because of their neutrality, they are better able to balance all interests of the different partners. Although, as Abbey says, “a broker sometimes has to work closer with farmers, as they are often the weakest partner in the partnership.” Many participants in the room confirmed the value of independent brokers in building trust among the partners in a 4P.
Brokering external investments for 4Ps is possible and necessary to scale
An additional objective of the Partnering for Value project is to explore the feasibility of brokering external financial investments for 4P cases, in order to help them get to scale. This role has been mainly taken up by Ruud Nijs, financial expert of TheRockGroup. He has been working on financial brokering for 4P cases in Uganda, Senegal and El Salvador. His finding is that it is indeed possible, but “strong commitment by the private sector and solid financial models are essential in finding interesting deals.” Moreover, he advocated for setting up a ‘brokerage team’ comprising different types of expertise, who are ready to support the 4P cases at several levels when needed. Experience has shown that especially smaller agribusinesses often do not yet have the expertise in working with banks and investors; they could significantly learn from such a brokerage team.
Discussions continued after the talk show through technical sessions on the development of 4P business plans as well as on financial brokering for 4Ps, amongst others. During these sessions, some interesting questions came up:
- Should the role of the broker be temporary or lasting?
- Could 4P brokering become a service that will be paid for, and if so, by whom?
- What is the added value and essential role of the public sector in a 4P?
- How can the sustainability of 4Ps be ensured?
At the end of the day, all participants agreed on two points: 4Ps do contribute to pro-poor agricultural development – however, there is still a lot to be crystallised. In short, there is a lot of food for thought for IFAD and SNV.
Interested to participate in further discussion on 4Ps? Stay tuned for a joint blog series on some of the themes mentioned above.
SNV is also part of PPPLab, a Public-Private Partnerships (PPPs) research consortium. Check out a series of articles, resources and publications on PPPs.