Introduction

Who is Partnering for Innovation?

Feed the Future Partnering for Innovation, a USAID-funded program, is changing the landscape for supporting agriculture in emerging-market countries by empowering the private sector to raise incomes and reduce hunger. Partnering for Innovation builds partnerships with agribusinesses to help them sell new products and services to smallholder farmers, who represent a potential market of more than 500 million customers. Businesses receive the investment assistance, expert guidance, and technical support they need to expand in emerging markets and create a growing and lasting customer base for their agricultural innovations. During the past six years, more than 1 million smallholder farmers have purchased $65 million worth of these products and services, enabling them to boost farm production, raise incomes, reinvest in their businesses, and increase food security.

See more about the program’s general approach to partnering with the private sector and its impact on individual smallholder farmers.

 

How Does Partnering for Innovation Partner with the Private Sector?


Partnering for Innovation was explicitly designed to make it easy for private-sector businesses to receive and manage USAID funds for the achievement of mutually beneficial development goals. Specifically, the program’s simplified application process, performance-based funding mechanism, and minimized reporting requirements all serve to make USAID funding more attractive and manageable for private-sector businesses. Partnering for Innovation also uses a strategic management approach to application, negotiation, and relationship management that draws on partner strengths for more impactful results. Targeted requests for applications that address specific program funding objectives attract more appropriate and qualified applicants, ultimately creating a strong portfolio of partners working in coordination toward larger development goals. In addition, tough negotiations upfront ensure that expectations for the partnership are clear to both parties when they move forward with an agreement. We see negotiation as a collaborative process that allows all parties, including Partnering for Innovation, USAID, and private-sector partners, to work together to develop a mutually beneficial set of goals and targets. Finally, we take a proactive approach to partner management that builds trust, facilitates open dialogue, and fosters collaboration to ensure that partners have the resources and support to overcome business challenges and achieve development results. For more information on Partnering for Innovation’s approach to partnership management, please visit Learning Brief #5: Managing for Partner Health.


What Has Partnering for Innovation Learned About the Private Sector?

While investing in more than 50 private-sector partnerships – bringing improved agricultural products and services to more than 1 million farmers – Partnering for Innovation learned key lessons that we wish we could have known right from the start. Luckily, you have the opportunity to learn from our successes and failures, including the following key guidelines for investing in and partnering with the private sector:

Take a Portfolio Approach to Investment

Rather than asking if each individual investment will succeed, it is more important to look at all of your investments together to determine if your portfolio has a good mix of different types businesses intervening at different points along the value chain; that way, even if, for example, all partnerships providing distribution services fail because of a nationwide trucking strike, your portfolio still has a group of successful investments providing products and services to smallholder farmers elsewhere along the value chain. Your portfolio should have a handful of very risky, innovative investments balanced with a sizeable group of more traditional, less risky investments to offset some of the risk. That said, some partnerships will fail, but those failures should not keep you from investing in businesses with exciting potential for transforming smallholder lives.

Select Businesses with Strong, Committed Leaders

Some businesses have a vocal internal champion for targeting the smallholder market, but if the key decision-makers are not fully invested in delivering products and services to this customer base, it is a warning sign that this potential partnership does not benefit the company’s bottom line. Likewise, private-sector investments that are championed by nongovernmental organizations (NGOs) rather than the businesses themselves should also raise concern. If the senior leaders and key decision-makers are not totally committed to growing their share of the smallholder market, then your investment business will not result in sustainable outcomes for smallholder farmers.

Negotiate Upfront for Clear Outcomes

Asking private-sector businesses to risk selling new products to new customers in new and difficult regions in ways that benefit smallholder farmers requires tough, transparent negotiation upfront. Negotiation should allow both the investor and the business to reach a mutually beneficial agreement on partnership opportunities, risks, incentives, and results that requires both parties to make calculated risks to achieve their goals. This negotiation process is intensive, requiring time, understanding, and patience; however, it helps set clear expectations for an open, collaborative relationship with clearly defined roles and responsibilities. By the time upfront negotiation is finished, the partnership is stronger and clearer, and the investor already has delivered value to the business. Committed decision-makers are important at this stage, too — negotiating directly with company leaders makes for stronger partnerships overall, because they buy-in from the start.

Allow for More Flexibility

Market systems, particularly in the agricultural sector, are unpredictable. For businesses to stay competitive in a constantly changing environment, your investment must allow the private-sector business to change their approach and pivot their activities to react to changing market demands and meet your development goals. One way to do this is to use performance-based or fixed-amount investments, where the business negotiates the expected cost of activities upfront and is then paid based solely on proven achievement of the stated results. By focusing on results, this approach allows businesses to quickly shift and adapt their implementation strategies as needed to achieve your development goals.

Prepare for External Complications

In addition to flexibility, businesses need to be able to look past the day-to-day operations and put longer-term strategies in place for managing inevitable external complications as they arise. For example, if a company is importing seed to sell to smallholder farmers because high yields in neighboring countries have significantly decreased seed prices, it still needs to put a strategy in place for when yields in neighboring countries decrease because of extreme weather, imported seed prices rise, and the company can no longer afford to bring in seed to sell on to its smallholder farmer customers. Getting businesses to shift to long-term thinking can be difficult, so it is important to include long-term deliverables like a five-year business plan or different cash-flow scenarios as part of your investment.

Focus on Long-Term Impact

You may be interested in immediate annual returns, both in terms of your financial and development goals; however, for small and medium-sized agribusinesses it will likely take considerably longer to build up a loyal client base and secure a share of the smallholder market. Rushing a business to deliver concrete sales and impact outcomes can result in it over-extending itself geographically, financially, or operationally just to meet the partnership targets, and puts your long-term sustainability in jeopardy. Therefore, we recommend that an investment period be no less than two years, with the understanding that measurable results may be achieved much later, outside of the actual investment period. It can take time for a product to really take hold and make the desired impact in smallholder-farmer markets. For this reason, as an investor you may need to find a different way to measure and communicate your success early on in your private-sector partnerships.

Limit Additional Reporting Requirements

While your investments may be the best option for private-sector financing, burdensome investor or donor reporting requirements can and do prevent some businesses from partnering with donors. Instead of requiring companies to develop new data tracking systems to track indicators that do not contribute to their bottom line, we have found success by pulling the impact information we need from the business’ existing administrative, production, and sales tracking systems . This approach ensures that investment funds are spent on core partnership activities where it is most needed for their product or services to succeed rather than in the development of new systems that the business will only use during the investment period.