Term Sheet: Agriculture. Term Sheet Agriculture Round: supporting market access for smallholder farmers

Transcription

1 Term Sheet: Agriculture Term Sheet Agriculture Rund: supprting market access fr smallhlder farmers Purpse Prepared by Fr distributin Jbs Fund PMO Date January 2015

2 Term Sheet: Supprting market access fr smallhlder farmers 1. Descriptin f theme area Summary f trends in the theme area Agriculture is an imprtant emplyer in the rural areas f Suth Africa, especially f lw-skilled and semi-skilled wrkers. Supprting the grwth f the sectr is a fcus f natinal plicy, including the New Develpment Plan (NDP) and the Natinal Grwth Path (NGP), and agriculture remains the key t prmting rural develpment, fd security and cmbatting rural pverty alleviatin. The legacy f apartheid has resulted in Suth African agriculture being dminated by large-scale cmmercial activities. Recently, hwever, the cuntry has seen a prcess f decnslidatin f farming land. Thrugh initiatives like land restitutin, mre and mre land is being placed in the hands f small-scale, emerging farmers. Fur millin Suth Africans are already engaged in sme frm f smallhlder agriculture, with the mst cmmn purpse t prvide fd fr their wn cnsumptin. 1 This prcess f decnslidatin exacerbates declining prductivity and shedding f jbs in the sectr, as cmmercial farming peratins are replaced with smallhlder peratins. 2 Imprved prductivity f smallhlder agriculture will enable higher value and superir quality f agricultural utput, and imprved cmpetitiveness. Mre cmpetitive smallhlder farms are mre likely t create and sustain emplyment and reduces levels f rural pverty. There is grwing urgency t smth the transitin int smallhlder agriculture, as a mechanism f prmting sustainable emplyment in the sectr. 2. Prblem statement What is the prblem that this interventin is aiming t slve? What are the current barriers t emplyment? Smallhlder agriculture can be bth a surce f self-emplyment, as well as an imprtant surce f rural emplyment fr lw-skilled and semi-skilled wrkers. Hwever, these jbs are dependent n the cmmercial viability and sustainability f the smallhlder farming unit. In highly cmpetitive agricultural value chains, the success f the smallhlder farming unit is determined by the ability f the smallhlder farmer t farm the land viably and sustainably, prducing higher value utput and linking int the agriculture value chain. The histry f the Suth African agriculture sectr means that agricultural markets have tended t develp arund large-scale cmmercial farming, and have nt evlved t include services and prducts apprpriate t smallhlder farmers. This means that the success f smallhlder farming is cnstrained by a number f factrs, including: Gegraphic barriers: Distance t market: The greater the distance t market, the higher the cst and lwer the availability f inputs. Distant markets als create difficulty in transprting prduct fr sale. 1 Aliber et al (2009) 2 Minister Nkwinti f the Department f Rural Develpment and Land Refrm is quted as saying that 90% f the 5.9 millin hectares that has been redistributed t smallhlder farmers is nt functinal. ( Page 2 f 10

3 Term Sheet: Supprting market access fr smallhlder farmers Climatic issues: Sme areas have unpredictable rainfall, temperature, heat units and light units Tpgraphy and sil quality differs between areas and tends t be lwer in the frmer hmelands Infrastructure cnstraints: Access and quality f public infrastructure in rural areas where smallhlder farmer cncentratins are high tends t be limited, which exacerbates gegraphic barriers. Smallhlder farmers ften experience difficulty in financing the develpment and maintenance f private infrastructure. In ther cases, publicly funded infrastructure facilities are lying idle and finance is required t bring these back int prductin. Pr access t markets: This includes access t input markets (which drives up cst f inputs), access t labur, access t pprtunities and access t marketing channels (which can influence the price and quality f prduce). Knwledge: Smallhlder farmers ften lack the experience, technical infrmatin, market infrmatin, business skills and cash-flw management skills t sustain and grw their peratins. Lw access t finance: Risk, seasnality and lack f cllateral make it difficult fr smallhlder farmers t access finance that is critical fr them t experience grwth. Lw levels f business skills mean that smallhlder farmers ften struggle t manage their cash-flw, and find wrking capital. In additin, financing institutins ften shw a lack f understanding f smallhlder farmers business mdels and the financial cnstraints they face. 3. Mtivatin fr Jbs Fund invlvement Is there a rle fr the Jbs Fund? Althugh there are currently a number f players wh prvide supprt t smallhlder farmers 3. Supprt tends t be fragmented and fcuses nly n ne r tw typical challenges facing smallhlder farmers, whereas the cnstraints faced by smallhlder farmers are systemic in nature. Supprt therefre needs t be accrding t a hlistic assessment f the reality faced by smallhlder farmers, and designed t deal with all challenges in a cmprehensive manner. Ultimately, supprt t smallhlder farmers must be designed based n a realistic assessment f hw best t imprve their cmmercial viability and integrate them int existing value chains. This view is supprted by the NDP, which calls fr creative cmbinatins f supprt t smallhlder farmers. The NDP recgnises that access t irrigatin infrastructure, farmer supprt t imprve the use f land, access t input and prduct value chains, and lking beynd nfarm jbs 4 are imprtant strategies that must be cmbined t hlistically supprt jb creatin in rural areas. The NDP calls fr imprved cllabratin between established agriculture stakehlders and smallhlder farmers, t supprt transfer f skills, knwledge and experience t emerging farmers. 3 There is n cmmnly accepted definitin f a smallhlder farmer. The Jbs Fund cnsiders the Small Business Act f 1996 as a reference pint fr defining a smallhlder farmer, where an SME in agriculture is defined as having less than 100 full-time equivalent paid emplyees, with an annual turnver f less than R4m and a ttal grss asset value f less than R4m (excluding fixed prperty). 4 Specifically, the NDP highlights the imprtance f agr-prcessing jbs, as a means f supprting jb creatin in the manufacturing sectr and as a mechanism t prmte cmmercially sustainable smallhlder agriculture, by helping farmers cnverge n higher quality standards. Page 3 f 10

4 Term Sheet: Supprting market access fr smallhlder farmers The NGP s cre strategy t prmte emplyment in agriculture is the prvisin f cmprehensive supprt packages t smallhlder farmers, including access t infrastructure, general business develpment supprt, targeted extensin and technical agriculture supprt, and ther measures t supprt grwth in cmmercial farming. The NGP states that a rural ecnmic develpment strategy must be based n a realistic assessment f the ecnmic ptential f a regin, and must address farmers access t markets. 5 There is a clear rle fr the Jbs Fund t facilitate innvative partnerships and new appraches that ffer systemic slutins t cnstraints faced by smallhlder farmers, lwer risk barriers, with high additinality and sustained impact. By imprving the cmmercial viability f smallhlder farming units, the Jbs Fund seeks t supprt self-emplyment pprtunities fr smallhlder farmers and create: New permanent n-farm jbs; Temprary, seasnal n-farm jbs; and, Further new permanent jbs thrughut rural agricultural value chains. Finally, jb creatin in this sectr als has significant ancillary benefits, by prmting the develpment f rural ecnmies and an assciated decline in rural pverty. 4. Prpsed interventin 4.1. Descriptin f interventin What needs t happen t address the prblem? The Jbs Fund is seeking innvative appraches t supprting smallhlder farmers by prviding/enhancing access t existing markets and integratin int agricultural value chains, facilitating training, as well as securing the viability and sustainability f the primary prductin activities. The desired utcmes f the prvisin f these supprt packages include: Increased access t agricultural inputs, apprpriate finance and infrastructure; Sustainable prductin activities; Imprved quality and imprved marketability f prduce; Increased prductivity, yield, sales and prfitability; Integratin int the agricultural value chain r linkages with relevant inputs and markets. The verall impact f the prvisin f the supprt package is sustainable smallhlder farming units that create and supprt new permanent jbs. This supprt culd take a number f frms: a ne size fits all apprach is inapprpriate, as smallhlder farmers will face different challenges (and intensities f challenges), depending n their cntext. The Jbs Fund is lking fr slutins that are designed with a deep appreciatin f real-wrld cnstraints t market access fr smallhlder farmers. Prjects must therefre cmbine the technical expertise f diverse market players t deliver cmprehensive, demand-driven slutins. 5 The sectins f the NGP relating t rural develpment and rural jb creatin are available at: Page 4 f 10

5 Term Sheet: Supprting market access fr smallhlder farmers 4.2. Preferred mdels What activities are needed, and hw shuld they be cmbined, t address the prblem? Successful applicants will prvide new appraches and innvative partnerships t prvide smallhlder farmer supprt. It is envisaged that a cmprehensive smallhlder farmer supprt package will include a cmbinatin f: Strategic identificatin and selectin f gegraphical areas r agricultural activities t be targeted; Prvisin f technical assistance thrugh activities like training, mentrship r caching; Prvisin r facilitatin f innvative agricultural financing; Prvisin f enabling infrastructure (excluding nce-ff asset transfers); Assistance with establishing institutinal (administrative and gvernance) systems fr smallhlder farmers r smallhlder farming grups; Facilitatin f linkages int input markets; Access t basic agr prcessing services; Facilitatin f demand-led nward market linkages including cllecting & transprting prduce, negtiating ff-take agreements and supprting stable and sustainable demand fr smallhlder prduce; and, Use f infrmatin and cmmunicatin technlgy (ICT) applicatins and mbile telephny in delivering supprt, as apprpriate. Any prpsed interventin shuld nt be delinked frm existing supply chains. Prjects mst attractive t the Jbs Fund will prvide smallhlder farmers with access t existing supply chains and be linked t existing surces f demand and fftake. 5. Guidelines fr this theme area 5.1. Funding Ttal grant allcatin t theme area The ttal grant envelpe made available fr this funding rund is R 600 millin. Grant size and duratin A critical funding bjective fr this theme area is t achieve efficiencies and scale. T supprt this bjective, grant sizes will range frm a minimum f R20 millin t a maximum f R200 millin. The prject implementatin perid is fur years (48 mnths). This includes the perid f Jbs Fund funding (grant disbursement perid) and the perid in which the jb creatin target must be realized. Page 5 f 10

6 Term Sheet: Supprting market access fr smallhlder farmers Matched funding It is intended that this theme area will enable the Jbs Fund t partner with market players within the agriculture value chain. The Jbs Fund is lking t leverage the private sectr s existing interest and financing f this area, and the amunt f matched funding prvided will be a key assessment criteria. Lead applicants will be required t demnstrate a jint interest in the success f the interventin and mre imprtantly, the sustainability and prfitability f the smallhlder farmer s primary prductin activities. This risk sharing will be demnstrated thrugh a minimum 1:1 cash c-funding rati; and where the acquisitin f fixed r mveable assets r the develpment f infrastructure is a necessary cmpnent f the initiative, the Jbs Fund grant can be used t fund up t 20% f this cst. There must be clarity regarding the wnership f such infrastructure and its usage arrangements fr the initiative Eligibility criteria (at prject level) At a minimum, what criteria shuld grant applicants meet? Applicants (i.e. a single entity r cnsrtium f entities) must individually r jintly: Have a track recrd f: Mre than five years f technical experience supprting smallhlder farmers; Mre than five years f demnstrable success in agricultural prductin in the subsectr(s) in which the initiative will perate; Delivering prjects f a similar size/scale t that prpsed. Submit a prpsal that has at its cre the linking f smallhlder farmers int existing markets in a hlistic, systemic way. Applicants ideas t achieve this shuld be demnstrated thrugh a clear Thery f Change r lgic chain. Submit a prpsal that fcuses n supprt t smallhlder farmers in high ptential, high labur-intensive value chains. Imprtantly, these value chains must be market-supprted with evidence that there is sustainable market demand fr agricultural prducts. Submit a prpsal that supprts the cmmercial viability f smallhlder farmers and is sustainable beynd the perid f Jbs Fund supprt. Offer a minimum f a 1:1 cash c-funding rati (matched funding t grant request). Demnstrate the manner in which the funding f all necessary assets (upn which the success f the initiative will be dependent) has been surced. Be slvent, have been perating fr mre than tw years, and have cmplete annual financial statements fr the previus tw financial years (these criteria apply specifically t the lead applicant). Page 6 f 10

7 Term Sheet: Supprting market access fr smallhlder farmers NOT submit a prpsal: That requires an utstanding Gvernment r legal decisin in rder fr the prpsed prject t be viable i.e. prjects that require, and d nt already have in place, a water license/ water use license/ envirnmental impact assessment are nt eligible; Fr prjects that are lcated n land that is the subject f an unreslved land claim, r invlves the acquisitin f land fr smallhlder farmers; Where the initiative is t be implemented, managed r crdinated thrugh a new legal vehicle that is nt in place prir t the Jbs Fund applicatin, nr has been tested befre (e.g. a Special Purpse Vehicle r Cmmunity Trust), unless a Memrandum f Agreement/Understanding has been drawn up that makes clear the wnership and institutinal arrangements Impact criteria (at prject level) Which criteria will the strngest prject embdy? The impact criteria which will be used t select the strngest prjects are: Innvatin: Initiatives that cntain elements demnstrating clear innvatin will receive preference. This culd include cmbining existing initiatives in new and interesting ways, taking existing initiatives int new areas r value chains, r using innvative technlgies t deliver services t smallhlder farmers. The prpsed initiative shuld demnstrate innvatin either in the frm, manner, cntent r delivery f the supprt package t the smallhlder farmer. Ptential fr jb creatin: Initiatives must create and sustain new permanent jbs, at bth the n-farm and ff-farm level. Initiatives must be based n results chains that clearly link the prpsed interventin t sustainable jb creatin. This link must be plausible, demnstrable and measurable, and rest n realistic assumptins (e.g. ability f the smallhlder farmers t meet the scale, technlgical sphisticatin r phytsanitary standards required fr certain agricultural prduce). Critically, an explanatin f hw the initiative will secure/enhance market access fr smallhlder farmers is required, as well as the effective demand fr the relevant agricultural prduce. Evidence f the labur intensity f the agricultural subsectr/s is required. Where revenue, yield r prductin assumptins and/ r nrms are utilized fr the estimatin f the jb creatin ptential, the applicant will be required at business case stage t shw a track recrd in achieving such nrms. Sustainability: Sustainability is cnceived f at tw levels: Prjects must demnstrate hw the desired utcmes will endure. Prjects must priritise the cmmercial sustainability f the farming unit and demnstrate hw the permanent jbs created will be sustained beynd the perid f Jbs Fund supprt. Critically, this includes explaining hw the market access that is secured during the perid f Jbs Fund supprt will persist. Page 7 f 10

8 Term Sheet: Supprting market access fr smallhlder farmers Furthermre, applicants must explain hw prject-related fixed and mveable assets (if relevant) will be funded and maintained ging frward. At the cncept nte stage, applicants must demnstrate understanding f the key indicatrs fr determining the sustainability f smallhlder farmers frm an agricultural prductin, financial and envirnmental perspective. At the business case stage, applicants need t explain precisely what steps they will take t achieve the sustainability f the smallhlder farmers. The applicant must be able t baseline the key sustainability indicatrs against which achievement will be mnitred. Prjects must als demnstrate hw the initiative itself (r a permutatin theref) will be sustained beynd the perid f Jbs Fund supprt i.e. can be selfsustaining after having prven the business case fr the interventin. Capacity t implement: Applicants must demnstrate relevant experience, rganisatinal capacity and key capabilities. Applicants must elabrate a cnsrtium cmpsitin that is lgical and value-adding and leverages the market psitin and capabilities f market players. Furthermre, applicants must demnstrate an appreciatin f their prpsed prject s supply chain and the determinants f success. Applicants must have apprpriate systems t cllect, cnslidate and reprt n financial and prgress perfrmance. Initiatives that bring tgether existing interventins and/r players in the agricultural sectr t frm new partnerships are encuraged. At the business case stage, applicants will be requested t prvide supprting dcuments that shw their track recrd with a specific fcus n the impact n the smallhlder farmers sustainability (agricultural prductin, financial, envirnmental). Additinality: The Jbs Fund aims t supprt initiatives that wuld nt have taken place withut Jbs Fund supprt because the risks presented are nt currently attractive t existing funders. Therefre, the Jbs Fund has a distinct rle, which des nt distrt r displace any current and n-ging market activity r investment. It shuld be nted that the lifting f the indebtedness f farmers r the reslutin f land restitutin claims will nt be funded by the Jbs Fund (neither will the Fund cnsider this t meet the additinality requirement). Cntributin t systemic change: Applicatins that cntribute t impact and learning in the sectr beynd the cnfines f their specific initiative are preferred. Initiatives shuld therefre invlve testing, develping and demnstrating new r path-breaking appraches t established business mdels; and/r have the aim f adapting r replicating an existing business mdel r prduct in new circumstances. Value fr mney: Applicants must demnstrate value fr mney in utilizing the Jbs Fund resurces in terms f: Creating lng lasting, equitable, and sustainable benefits i.e. number f smallhlder farmers receiving financial supprt, technical supprt and training (where accredited/recgnized training is preferred). Page 8 f 10

9 Term Sheet: Supprting market access fr smallhlder farmers Cst efficiency and effectiveness i.e. number and type f jbs created; cst per jb. C-funding rati: The Jbs Fund aims t leverage existing resurces in a manner that shares risk and places the right incentives fr investment, return and wnership. As such, a minimum cash c-funding rati f 1:1 (matched funding t grant request) is required. Initiatives prpsing a c-funding rati exceeding 1:1 will receive preference Ptential prject partners (applicants t this rund f funding) Wh shuld apply? Existing market players in the agricultural value chain, including industry bdies and assciatins, agribusiness firms, retailers, agr prcessrs, input suppliers, cmmercial farmers and financiers/insurers are all eligible t apply. Organisatins with apprpriate experience in delivering business develpment supprt, extensin and/r similar services must wrk with existing market players t cmbine skills and experience fr a successful market-linked interventin. 6. Intended utcmes What will change as a result f the interventin? In terms f the utcme indicatrs, these results must firstly be clsely linked t the 6 Jbs Fund Prgramme indicatrs. In additin t these, a number f standard sectr indicatrs must be selected frm a predefined list fr regular mnitring. In terms f utput indicatrs, cnsideratin must be given t tailring key indicatrs fr the specific agricultural activity being undertaken as well as indicatrs f success at the smallhlder level. Fr example: a) agricultural prductin (utput and yield); b) financial perfrmance (revenue and prfitability); and c) envirnmental sustainability (water surces and quality, sil quality). The applicant must prvide sufficient capacity t undertake baseline assessments and track and verify perfrmance Characteristics f targeted beneficiaries These culd include gender, incme level, skill level, emplyment status. Supprt f each smallhlder farmer is expected t result in a cmmercially viable and sustainable farming unit, which will at least supprt lng-term self-emplyment f that smallhlder farmer. The principal beneficiaries in this theme area are smallhlder farmers, wh currently wn r have secure rights t agricultural land but struggle t make prductive use f that land. The wnership and gvernance arrangements fr cmmunal land must be firmly established. Equality in distributin f genders will be targeted, and preference will be given t prjects that explicitly target the yuth (between the ages f 18 and 35 years f age). Page 9 f 10

10 Term Sheet: Supprting market access fr smallhlder farmers 6.2. Scale Number f beneficiaries An explicit bjective f this theme area is that the grwth f each smallhlder farm will enable the creatin f n-farm jbs as well as upstream and dwnstream jbs in rural areas. Prjects will need t shw hw many n-farm jbs are expected t be supprted per selfemplyed smallhlder farmer. These calculatins must be based n hw much revenue per hectare r yield per hectare is expected t result frm supprt prvided t smallhlder farmers. The Jbs Fund understands that this may differ between types f agricultural prduce, and therefre urges applicants t evidence their calculatins. Further, prjects that seek t crwd-in market players t catalyse jb creatin thrughut the agricultural value chain are mst attractive t the Jbs Fund, and this shuld be clearly demnstrated Types f jbs created Jbs in the agriculture sectr are ften seasnal and characterised by temprary r semipermanent labur arrangements, which are ften based n infrmal cntracts. Hwever, strng applicants will prpse new appraches t create quality, sustainable jbs. In particular, the Jbs Fund will nly supprt prjects where farmwrkers are paid in line with statutry minimum wage levels. Jbs Fund Partners will be required t prvide mnitring data n the number f peple emplyed, their ID numbers and Rand value paid in wages. Applicants will be expected t describe hw new permanent jbs and new temprary jbs will be differentiated, cunted and evidenced. Page 10 f 10