Why Should I Partner with the Private Sector?

Partnering directly with private-sector businesses is a good way to build sustainable access to agricultural technology and markets for smallholder farmers. Smallholder farmers need improved inputs, access to finance that suits the agricultural cycle, better ways to store their harvested goods, and access to reliable markets. Agricultural businesses have the products and services that smallholder farmers need to make farming productive and profitable and can provide markets for farmers’ goods. By investing in private-sector businesses as investors, you can achieve your development goals for smallholder farmers while building the long-term capacity of individual businesses and the resiliency of the market system as a whole. Specifically, investing in ways to de-risk private-sector agribusinesses to expand or enter into smallholder markets can have the following benefits:

See why you should consider partnering with the private sector to achieve your development goals.

 

Catalyzes Private-Sector Investment

 
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  FARMER STORIES:  Smallholders in Their Own Words    See some of the farmers who have benefited from access to new goods, services, and markets.  Read their stories here .

FARMER STORIES: Smallholders in Their Own Words

See some of the farmers who have benefited from access to new goods, services, and markets. Read their stories here.


Private sector businesses have funds to invest in their business growth, and private sector partnerships can leverage those resources in activities that benefit smallholder farmers. When investing in private-sector businesses, you can and should attach conditions to those investments to ensure that development goals are being met in addition to the company’s business targets. One important condition should be that private-sector businesses invest an equal or greater amount of their own funds in the partnership. These leveraged funds ensure that businesses are risking their own resources as well as yours and are incentivized to build long-term market relationships with smallholder customers. Leveraged funds also ensure that funding is being used for capital improvements or other one-time investments needed for the company to scale up their production or sales capacity, rather than being used for daily operations and creating a dependency on donor funds. Finally, leveraged funds can have an exponential effect on investment by allowing businesses to reach a higher threshold of production or sales than would be possible with just the investment. In other words, doubling the funds invested in smallholder customers can more than double the impact on the numbers of smallholder farmers with access to needed products and services. For example, Partnering for Innovation invested in Twiga Foods, a company that had developed a mobile app connecting rural horticulture producers with urban produce vendors. The program invested almost $700,000 to build rural produce collection centers, which are key points in Twiga’s distribution system, and which required Twiga to commit an equal amount in land purchases, construction materials, and labor for the successful completion of the collection centers. In addition, due to the increased volume of produce sourced from the new rural centers, Twiga has been able to attract significant outside investment as well, including $10 million in Series A funding for improved urban distribution and IT infrastructure.
 

Creates Results at Market Scale

 
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Not only does investing in the private sector have the potential to exponentially increase the number of smallholder customers for individual businesses, it also has the potential to affect the entire market system in subtler ways. By firmly establishing successful new products in the smallholder market, businesses can demonstrate the viability of selling products designed for and targeted to smallholder customers. This approach in turn attracts, or “crowds in” new agribusinesses and service providers, resulting in a wider variety of products and services available to smallholder farmers at competitive prices. For example, Partnering for Innovation invested in Kenyan plastics manufacturing company Bell Industries to produce and distribute PICS bags, hermetically sealing 50 kilogram bags for grain storage that significantly decrease smallholder postharvest losses. Bell Industries got these bags into the market with the program’s support, and the company quickly demonstrated their efficacy to smallholder customers. As Bell Industries grew scaled up their production and sale of PICS bags, other companies took note and brought competing products to the market, including GrainPRO SuperGrain bags and AgroZ bags.

In addition, this crowding-in also catalyzes the development of new complementary products and services to maintain smallholder customer relationships. For example, if investment is used to successfully market improved varieties of millet and smallholders demonstrate their willingness to pay a premium for those improved varieties, other businesses might see an opportunity to market their own improved varieties of sorghum or teff for those same smallholder customers. Finally, as businesses start to develop their smallholder customer base, they will look for new ways to improve or simplify their operations, including improving local manufacturing capacity, investing in relevant infrastructure, developing better distribution networks, and designing market campaigns to educate their customers. These investments will benefit not only the company but also other market players entering the smallholder market, and they will result in a richer and more resilient market ecosystem.


Addresses Key Market Constraints

Investing in private-sector businesses also addresses a critical financing gap that prevents many private-sector businesses from targeting smallholder customers on their own. Startup costs and risks are often too high for most businesses to establish a new product and sales force in smallholder markets, and traditional financing often is not available or accessible for small and medium-sized businesses looking to expand into smallholder markets. In addition, reaching smallholder customers often requires significant investments in new rural distribution, marketing, processing, packaging, or purchasing systems that can be difficult to implement in rural areas with limited infrastructure. Businesses need the support of both investment to scale up operations and business expertise to reach these new markets. For example, Partnering for Innovation invested in US-based company Store It Cold to market its CoolBot technology as the only low-cost alternative to traditional refrigeration in Latin America. The program funded the company to enter the market in both Honduras and Guatemala, but allowed Store It Cold the flexibility to try different sales strategies in each market—in Honduras, Store It Cold is working with local partner PartnerHero to establish in-country operations and hire knowledgeable and well-trained local staff with an understanding of the market and customers, while in Guatemala Store It Cold has signed a distribution agreement with Guatemalan distributor Industrias Servin to handle its sales of cold store rooms and refrigerated trucks. Partnering for Innovation’s investment incentivized the company to move into this hard-to-reach market by allowing them to get to know their customers in different markets by trying different sales strategies and different product bundles.

Generates Sustainable Results

Investing in private-sector businesses sparks a sustainable cycle of profitability for both farmers and agribusinesses. Farmers benefit from commercial access to needed goods and services, because businesses have a profit incentive to build an efficient, sustainable market presence that is aimed at smallholder customers’ needs. As farmers become more productive, they have more money to spend on these businesses’ goods and services; in turn, businesses ultimately reach a volume of sales and increased profits needed to reach more smallholder customers without the need for continuing donor support. With an untapped market of 500 million smallholder farmers, integrating smallholder farmers as customers and suppliers can be profitable for businesses while also enabling farmers to take advantage of agriculture’s potential to improve their livelihoods and food security. For example, Partnering for Innovation invested in EthioChicken, a company that sells day-old chicks through a network of commissioned sales agents who raise the chicks to approximately 40 days old, at which point they have received all necessary vaccinations and are hardy enough to survive the often-difficult conditions in rural Ethiopia. By the end of the company’s partnership in 2016, they had ramped up production from 10,000 chicks to 1.3 million chicks per year and increased sales to almost 350,000 smallholder farmers. However, thanks to the program’s investment in scaling up their business, EthioChicken continued to grow its production and sales even after Partnering for Innovation’s funding ended, reaching 4.2 million chicks sold to 600,000 farmers in 2018.