Empowering Smallholder Farmers through Rural Enterprise

Transcription

1 Maendeleo Agricultural Enterprise Fund (MAEF) Empowering Smallholder Farmers through Rural Enterprise Annual Narrative and Financial Report Year 3: April March 2014 Submitted to Small Foundation

2 Contents 1. Executive Summary Introduction Key Achievements of Active MAEF Investments Challenges and Lessons Learned The Revised Funding Model Financial Report Annex 1: MAEF Project Summary - Active Grants... 18

3 1. Executive Summary The Maendeleo Agricultural Enterprise Fund (MAEF) is a five-year agribusiness innovation programme managed by Farm Africa with support from the Small Foundation and other donors. The Fund provides finance to stimulate and scale up rural small and medium-sized enterprises that, through increased economic activity, can raise rural families out of poverty in East Africa. This report highlights the Fund s main achievements and challenges to date, while focusing on lessons learned and Fund developments during the last year (April 2013 to March 2014). Since project inception, the Fund has achieved the following key results: Attracted partnership and commitment from other donors and investors, resulting in 2,388,420 of new funds raised. This represents a near quadrupling (3.93 times) of the Small Foundation s investment of 607,025 to date. 12 value chain and two scale-up projects have been funded, collectively impacting 39,800 farmers, on schedule to reach the target of 45,000 beneficiaries. In terms of outreach efficiency, these interventions are able to reach farmers at a highly costeffective investment of 75 per beneficiary. The Fund is supporting activities in a dozen value chains including fruits, grains, vegetables, nuts and poultry. It is testing new business models and targeting local, regional and international markets, enabling comparison of products, markets and methods of financing in relation to the specific needs of rural enterprises and the smallholder farmers they serve. Direct results of the Fund s support to grantees include productivity increases, price improvements, extended buyer contracts, entry into new markets, piloting of digital market information, and increased agri-processing capacity. Some examples: o o o o o Women farmers in Kenya have seen three fold increases in yields of passion fruit. The added volumes enabled them to sell 750MT in 2013, which injected Ksh 22.5 million ( 181,000) into the local economy. Mwailu Enterprises were able to expand their contract with East African Malting Ltd from 500MT to 2,000MT after securing support from MAEF. Ideal Matunda Ltd has contracted more than 600 farmers in one of the driest areas of Kenya to grow pigeon pea for the higher end urban market. With support from MAEF, mango growers have a new reliable market for their mangoes through the fruit juice processing facility established by KDC. Ten Senses Ltd added 65 new jobs for women working in the processing facility. Before their cashew nut partnership with MAEF, the company employed 35 women processing macadamia. Following performance reviews over the past six months, the majority of grantees are being retained. Two have been terminated and further funding placed on hold for several others pending improvements in accountability of funds, results reporting, management practices and technical performance. The retained grant investments all have good potential for growth and sustainability over the next three years through increased trade with various value chain partners. In all of its work, Farm Africa is continuously looking inward to learn from our mistakes and build on the successes. MAEF is a pioneer project that is helping to shift our development 2

4 model from subsistence and productivity to business and income generation whilst reaching ever greater numbers of rural households. Activities in the final quarter of 2013 addressed these challenges specifically, including a thorough and critical review of the Fund s methods, staffing and grantee achievements to date. As a result, a revised concept was developed that builds on past experience but differs in several significant aspects from the original model. An important finding coming out of the review was that the initial design of the Fund did not account for its own sustainability outside direct donor funding for the activities and management costs. The design is therefore being adapted and customised by Farm Africa to introduce more flexibility in fund management and to test financial models that will sustain the Fund itself. Beneficiary businesses will be required to treat their farmer outreach as an overhead or embedded cost built into the price of the service or item being sold to the farmer, or into the price paid to the farmer for products being bought. This will ensure sustainability throughout the value chain as Farm Africa gradually phases out its grant support and links the businesses to other sources of investment. 3

5 2. Introduction The Maendeleo Agricultural Enterprise Fund (MAEF) is a programme managed by Farm Africa that aims to identify, stimulate and scale up rural enterprises that lead to economic activity and bring people out of poverty in East Africa. MAEF supports businesses that either engage the participation of smallholder farmers into value chains or provide products and services to farming families to improve their efficiency, modernise their farming practices and ultimately increase their incomes. The 5-year MAEF programme was launched in 2011 and has three key elements: Incubator Fund: provides grants for innovative ideas at an earlier stage in the cycle, to help businesses refine a proposition and adapt any tested ideas for wider adoption. Successful best practices can also be scaled up; Competitive Value Chain Fund: provides 2-3-year grants to projects that use a value chain approach to agricultural innovation, encouraging improved productivity, market access and agricultural commercialisation at smallholder level; Scale-up Fund: provides 3-4-year grants to expand successful technologies and best practices trialed under the Competitive Value Chain Fund using lessons and experiences learnt. The key objectives of the project include: a. Establish an effective fund and management system to leverage support for the three funding mechanisms. b. Identify, test and promote viable innovative business-oriented agricultural technologies for increased productivity and value addition. c. Sustainably increase the levels of incomes and improved livelihoods of smallholder farmers through synergistic partnerships and entrepreneurship. d. Document and disseminate lessons from the three funds for wider adoption. To date, the Fund has launched two rounds of funding for the value chain and scale up mechanisms, resulting in 14 grants approved and currently in various stages of implementation. No incubator grants have been awarded to date. It proved challenging to fundraise for these grants in part due to the high costs of identification and management of suitable grantees relative to the size of grants needed. This challenge will be addressed in future since the development hypothesis that micro-businesses operating at village level can effect transformation of smallholder enterprises remains valid. However, the MAEF project was a new approach for Farm Africa in that the Small Foundation s lead donation covered the Fund s management and running costs but then required Farm Africa to mobilise additional resources from other donors to fund the actual enterprise support. Leveraging such a high proportion of capital for three different grant categories each year was extremely ambitious, and required Farm Africa to attract new funding partners at each level. Although MAEF has succeeded in leveraging 2,388,420 since 2011, from 10 different donors (private individuals, companies, trusts, foundations and one institutional donor) this did not reach the level originally envisaged. As a consequence, the incubator fund was not sold effectively to donors, despite its key role, in reality because of the low contribution the grants would have made to the total portfolio. This is being corrected in the new approach by promoting more flexibility and movement between different types of grant and providing additional management support to start-up and microenterprises benefitting from the incubator grants. 4

6 3. Key Achievements of Active MAEF Investments The majority of grantees are being retained after performance reviews over the past six months. Two have been terminated and further funding placed on hold for several others pending improvements in accountability of funds, results reporting, management practices and technical performance. The retained grant investments summarised below all have good potential for sustainability over the next three years through increased trade with various value chain partners. The previous focus on technology, productivity and group marketing means that the grantees now have upstream capacity for production levels that can attract input suppliers and downstream marketable volumes of better quality products that buyers can collect and process at competitive cost. Round 1: Focus on Women in Agriculture These grantees have largely operated in the post-subsistence, pre-commercial space, addressing the specific needs of many smallholders and nascent businesses by: 1) Introducing new technologies, such as improved seed - KARI, NACRRI 2) Organising farmers into collective units that facilitate aggregation - DORT, KDC 3) Increasing productivity and improving product quality through extension and training - KARI, NACRRI, DORT, KDC 4) Assisting in market linkages to local processors - KARI, DORT, KDC Results of these grants have been mixed. The most common weakness amongst the grantees was for reliable and sustainable markets and one key lesson from this round is that the organisations selected were not the best positioned to interact with marketing companies or to accomplish the longer term commercial objectives sought. They were government agencies (parastatals), NGOs, CBOs farmer apex organisations and consultancy companies that focus on research and training. However, the participation of these predominately noncommercial organisations was foreseen and included in the original design and contract. In the very low income, remote areas that were originally targeted by the Fund, commercial companies are few and have extremely low capacity. Additionally, in order to produce tradable quantities needed to reach any market, it is necessary to work with non-commercial organisations that have farmer outreach capacity. The redesign of the Fund takes a different approach by accepting the need to deploy more resources to build the capacity of existing nascent businesses (through the incubator fund) and more established rural enterprises (see section 5). In order to address the capacity need, Farm Africa has partnered with Accountants for International Development (AfID) to introduce a new cross-cutting activity on financial systems and record-keeping, accountability, management reporting and business planning. Currently, capacity assessments are being undertaken and actions plans will be implemented in the next three months. Below is a brief update on each of the first round grants: a) Pineapple production and marketing in Tanzania for domestic and export markets - DORT Africa Company Limited The purpose of the project is to increase annual household incomes and food security of women famers through pineapple production and marketing. The project was based on an assumption that overall demand for pineapple products in Tanzania and globally is increasing and smallholders in Tanzania have the production conditions necessary to grow 5

7 and market the fruit competitively. Based on this, DORT, a technical services company, is working to increase pineapple production by 1,000 women farmers in the Bagamoyo, coastal region of Tanzania. The technical approach is to introduce a higher-yielding pineapple variety (smooth cayenne) and to train farmers in improved agronomic practices that will promote acreage and yield increases, raise quality standards and deliver commercial quantities of fruits acceptable for processing into juice. New postharvest and processing systems are being introduced to add value, diversify marketing channels and establish market linkages with new buyers. The grant is being used to do the following: Farmer training and extension with a focus on market requirements. Demonstrations and farmer field schools. Creation of an umbrella apex farmers association for aggregation and collective marketing. Co-investment in a solar processing facility for value addition to be owned and managed by the farmer apex association. Incomes increased through linkage with the Bakhresa food processing company (AZAM). To date, 380MT of fresh pineapples have been sold to AZAM, at Tsh /kg, compared to Tsh110/kg previously sold to brokers and in local markets. Yields increased by 60%, from 10MT/ha at start of the project to 16MT/ha. 1,750 MT were sold to a processing factory by more than 200 farmers in the most recent harvest, totalling Tsh 239 million ( 103,844). This represents an average income per farmer of Tsh 1,158,500 ( 503). Others continued to sell their produce in the local markets. 700 farmers are gaining knowledge of improved agronomy and production technologies through six demonstration sites established (one per village, with 0.25 acre each) and 44 groups. Just over 30 percent of these are selling surplus pineapples. Solar drying facility completed, with a capacity of 100KG of dried pineapple chips per day. Farmer apex association, UFUMAKIFU, has been established and registered, and is officially in operation. A market study completed indicated potential untapped market for dried pineapple in local supermarkets. b) Enhancing women smallholder farmers capacity to produce and market sugar bean in Uganda - National Crops Resources Research Institute (NaCRRI) The project aims to increase household incomes by increasing women farmers access to high value markets. Toward that end, NACRRI is working with 2,000 women in Kisoro and Kabale districts to link them to higher value markets by reducing costs and improving bean quality. Small and medium agro-enterprises are also being assisted to store beans, and to grow and diversify market distribution channels. The grant is being used to: Build the capacity of farmers and groups on GAPs and entrepreneurship. Support two women groups to become commercial seed producers. Conduct relevant studies necessary for the preparation of business plans baseline study, market demand analysis and buyer surveys. Bulk up production among area farmers to achieve quantities that will attract wholesalers. Strengthen market linkages with input suppliers, buyers and other service providers. 6

8 Develop and build collection centres for aggregation and collective marketing. Introduction of quality control systems including new packing and labelling. Fifteen demonstration plots established to support training on staking options (this has been identified as a constraint in increasing production) and other GAPs. New technology adoption by 1,687 women farmers growing the improved climbing bean that has strong market demand. A total of acres have been planted One new store with a capacity of 45MT constructed in Kisoro district to reduce wastage and provide space for aggregation of product for out-of-season sales. Total of 148MT of grain beans produced and sold to date, worth UgSh 273 million ( 79,276). Farmers linked to two new buyers for bulk selling a national company and an international exporter who supplies beans to Italy for canning. c) Passion fruit production, processing and marketing to increase household incomes of women farmers in Kenya Kenya Agricultural Research Institute (KARI) KARI, as a parastatal research organization, aims to disseminate appropriate production, postharvest and marketing technologies that enable smallholders to grow cash crops, including passion fruit, as a business enterprise. This partnership between MAEF and KARI aims to create new income and employment for 3,000 women farmers in Kwale County, on the Kenyan coast. The grant is being used to do the following: Training and extension on appropriate technologies for increased production, pre and postharvest handling, processing and utilization of passion fruit and its products. Building farmers capacity and skills in entrepreneurship, marketing and business systems. Establishing collection centres for aggregation and collective marketing. Linking farmers to profitable and sustainable markets Conducting baseline surveys, market and value chain studies necessary for business plan preparation. Disseminating knowledge on successes/experiences in processing and utilization of passion fruit and its products through field days, trade fairs and agricultural shows. 595 acres of improved KPF4 passion fruit varieties have been established. An estimated 750MT of passion fruit were sold in 2013, which injected Ksh 22.5 million ( 182,011) into the rural economy. Formal marketing arrangements have been made with local processors, fresh fruit exporters and domestic market buyers. Four mini processing kits were provided to demonstrate processing and value addition. Farmer groups are now making juices and jams for local sales. Early adopters have demonstrated that yield increases from 5MT/ha to 15MT/ha are possible. They have witnessed threefold increase in farm gate sales value through introduction of new varieties and techniques. Improved skills on postharvest handling ensuring that farmers can now sort, grade and store, and therefore negotiate for better prices at the collection centres. Improved access to market information using mobile phones. The farmers can receive price information for markets countrywide by just sending an SMS to the M- Farm number. 7

9 d) Mango value chain for women farmers in Kitui central district Kitui Development Centre (KDC) The overall objective is to improve the livelihoods of small scale women farmers in Kitui central district through selected interventions in the mango value chain. The project is introducing improved, high value mango cultivars maturing at various times throughout the year and investing in value addition by establishing a mango juice/puree extraction plant. It will provide a market for more than 6,000 farmers. The grant is being used to do the following: Training, extension and marketing support. Organisation of a cooperative for mango production and marketing Purchase and commissioning of a processing machine and premises for puree and juice production in Kitui. 822 mango farmers have been trained and 117 training-of-trainers sessions have been conducted to increase extension support. 4 fruit tree nurseries have been established and skills on nursery management have been passed on to 600 farmers. 450 mango seedlings have been sold through the cooperative. A farmers cooperative has been formed and registered. Average yields have increased from less than 100 fruits per tree to as high as 350. A new mango processing facility has been established with a capacity of 100 litres per day. KDC has bought 18,500 kg of fresh mango from the participating farmers and are selling mango pulp at Ksh 240/litre ( 2.05). Round 2: Focus on Climate Resilience From a commercial standpoint, grantees in this round have been considerably more successful than the first. Lessons from the first round were used to drive changes that improved the overall process of selection and took a business approach from the beginning. The call for proposals specifically invited commercial companies to apply and the Fund committee selected businesses that appeared to have viable business models. Documented business plans and market information were required as part of the proposal package and these were reviewed by consultants provided by Standard Chartered Bank. Whereas the first round was funded by a mix of donors, this one was funded entirely by the Rockefeller Foundation, thus making the grants management aspect more efficient and minimizing the burden of multiple interests, reports and other donor-related demands. Although results from the first year of implementation are still being analysed, indicative results to date are encouraging: 1. Mwailu Enterprises were able to expand their contract with East African Malting Ltd from 500MT to 2,000MT per annum after securing support from MAEF. 2. Ideal Matunda Ltd has contracted more than 600 farmers in one of the driest areas of Kenya to grow pigeon pea for contracted sales to wholesalers and retailers in Nairobi and other urban markets. 3. Ten Senses has committed to increasing purchases of cashew nut from Lamu growers that will enable them to double production and incomes. Brief updates on each of the second round grants are provided below: a) Cassava processing in the Rwenzori Region of Uganda - Private Sector Development and Consultancy Centre (PRICON) 8

10 This investment aims to support smallholder farmers in the Rwenzori region of Uganda to improve their social and economic livelihoods through production and processing of cassava. Support from the fund will enable purchase and installation of three modern milling plants with capacity to grate, flash-dry, mill and sieve cassava roots to produce high quality confectionary flour. A bagging machine will be procured for packing flour into various sizes/volumes for sale. The project will benefit 2,000 farmers. The grant is being used to do the following: Training and extension, with particular focus on food quality standards and processing. Creation and strengthening of viable producer and marketing cooperatives. Provision of inputs for demonstration and bulking the new cassava varieties Procurement of three modern milling plants to grate cassava and a bagging machine for the flour Promotional events and visits to support seller-buyer platforms for market relationship building Achievements to date 16 demonstration sites have been established and planted with the early maturing disease resistant NACE14 cassava variety. Training of farmers on GAPs has been conducted. Basic quality of dried cassava, prior to processing, has improved through introduction of slicing machines, use of tarpaulins and drying racks, and other postharvest management techniques. The farmers have been organised into Area Cooperative Enterprises (ACEs) and their legal registration process started. A total of 415 farmers have been registered to date. Marketing relationships with buyers have been strengthened. b) Soybean value chain management for livelihood improvement amongst women farmers Volunteer Efforts for Development Concerns (VEDCO) This investment aims to generate new income from soybean production and marketing by women farmers in Rubirizi District in Uganda. The project will bring together growers, input suppliers and traders in an attempt to grow and market the crop competitively by applying an integrated value chain approach. Soybean buyers, including Maganjo, East African Basic Foods, Mukwano and Mt. Meru have been introduced to growers from the outset of the project. The buyers are currently importing soybean for the animal feed and processed food industries but see an opportunity for import substitution if the Ugandan farmers can grow and aggregate the crop competitively. The grant is being used to do the following: Training and extension in soybean production, including postharvest handling. Increasing farmers access to high quality seed. Improving access to finance. Improving producer and marketing group organization and building capacity in business and marketing. 120 farmers have received and are multiplying improved soybean seeds to bulk up to commercial lots Rural producer organisations (RPO) and Area Cooperative Enterprises (ACE) have been formed to market soybean collectively 9

11 Uganda Cooperative Alliance has carried out an assessment of the ACEs to determine support needs to improve governance and, eventually, achieve legal status and business advantages as a formal cooperative. 22 groups have been trained in VSLA formation to start mobilizing money to invest in the soybean enterprise. Baseline and soybean value chain studies were completed identifying the constraints and interventions required, as well as supporting institutions and infrastructures available. c) Fair Trade cashew nut value chain development in Kenya Ten Senses Africa Limited This project aims to increase smallholder incomes from cashew nut production and marketing in the Lamu coastal area of Kenya. Ten Senses, a fair trade company, is currently exporting macadamia nuts to various European markets grown by smallholder farmers in the Mt. Kenya region. With MAEF support, they are diversifying their sourcing and product range to include cashew nuts from Lamu. The area targeted by the partnership is well established as a high potential cashew growing region. Growers are delivering raw cashew nuts to Ten Senses who process and package them following international fair trade standards. If production can be increased to sufficient levels, the company plans to expand its exports to the United States. The grant is being used to do the following: Training and extension of small scale cashew nut farmers in Lamu County. Creation of a sustainable business model between the farmers and Ten Senses that meets the requirements for Fair Trade certification. Formation of a community fund using Fair Trade premiums Creation of a marketing society to monitor prices, market trends and quality assurance. Purchased 10MT from farmers so far this year but still targeting 38MT in total. Prices paid KSh40-55/kg, up from Ksh15-20 before project began. Have added 65 new jobs for women working in the processing facility. Before the MAEF partnership, the company employed 35 women processing macadamia. 20 farmer groups formed and agreed to grow cashew nuts for Ten Senses. A formal MOU has been agreed between the company and an existing farmers cooperative to ensure adherence to fair trade standards and mobilize farmers to participate in the project. Additional equipment and machinery has been procured to enable expanded processing. Potential international marketing contacts were made with four companies during the 2013 international Fancy Foods Show in San Francisco (USA). d) Enhancing productivity and marketing of pigeon peas in Makueni County, Kenya - IDEAL Matunda Ltd The investment is enhancing production and marketing of pigeon peas through promotion of improved varieties, good agricultural practices and value addition. IDEAL Matunda is a Kenyan company in operation since 2006 with a successful track record of exporting fresh avocados to the UK and European markets. They also have experience in value added products, particularly avocado oil, which they export to South Africa and other international markets. IDEAL has been sourcing from smallholder farmers and has assisted them in becoming GLOBALGAP certified. They are being supported by MAEF to diversify their 10

12 product range and markets by adding pigeon peas grown by smallholders in Makueni, collected, stored and graded for sales into the local (Kenyan) markets. This will benefit the company by giving the possibility of year round sales and cash flow, and by minimising the risk associated with depending on one product with limited market opportunities. The grant is being used to do the following: Mobilize and build the capacity of smallholder farmers for commercial production of pigeon peas. Facilitate bulking, sorting, processing and packaging of pigeon peas as per market requirements Link smallholder farmers to high value and sustained market for pigeon 26 farmer groups in operation and 586 farmers trained on group institutional strengthening, GAPs for pigeon pea production and marketing systems. Baseline survey and value chain analysis done to provide vital information on the intervention and inform future business plans. 10 service providers trained on GAPs to start offering pigeon pea related services in the area. This is targeting building local capacity and long term sustainability. Credit was provided for 900kg of early and medium maturing pigeon peas planted by the 26 targeted farmer groups in November Late start of the annual rains delayed planting and harvesting is only now under way. However, production is expected to meet the targets. e) Commercial production of sorghum by smallholder farmers in Makueni County, Kenya - Mwailu Enterprises Ltd MAEF is partnering with Mwailu to increase production and improve productivity of sorghum through the introduction and promotion of high value varieties for brewing and food processing. The project is focusing on seed selection, labour saving mechanization and good agricultural practices to increase volumes and reduce costs. Mwailu Enterprises deals in aggregation and bulking of grains from smallholder farmer groups and has a contract with East African Breweries to supply 2,000 MT of sorghum per year. Currently, the company is only able to procure a small fraction of this, having supplied 100MT in the season before this project started. MAEF support is enabling 2,000 farmers to tap into a secure market for their sorghum and, at the same time, strengthening Mwailu s grain trading operations. The grant is being used to do the following: Training and extension of sorghum growers and local government technical officers to reach a critical mass of farmers on a sustainable basis Co-investing in tractor rental services until the number of farmers participating reaches a profitable level. Creating and building the capacity of cooperative marketing groups. 6,400kg of certified gadam sorghum was distributed on credit to 1,377 farmers A total of 1,598 acres were planted with sorghum in the short rain season at the end of acres were ploughed by tractor. Contracts between Mwailu and the farmers were agreed including a price of Ksh 24/kg, an increase of Ksh 2/kg over the previous season. f) Scaling up exports of fruits and vegetables from Tanzania to EU markets - HomeVeg Tanzania Ltd 11

13 HomeVeg already exports a range of fresh produce to EU markets. All these products are grown by small-scale growers in the Usambara Mountains in north eastern Tanzania. This project will focus on increasing volumes and diversifying product range to meet market demand from existing and new buyers. The company has strong demand for fine beans, sugar snaps, mangetout, baby corn and chillies. They have recently been offered new contracts for passion fruit and chives. MAEF s intervention will assist in meeting this demand through production and quality interventions. The grant is being used to do the following: Training and extension to farmers to enable them to meet EU quality standards and trade regulations Building a grading hall for the smallholder farmers closer to the production sites in Lushoto. This will improve quality and reduce wastage as well as adding value by enabling farmers to sell export reject produce on the local market. Establishing 12 greenhouses as alternative production and demonstration sites for production in periods of unpredictable weather, especially frost and hail. Total amount harvested in September-December 2013 was 78,543 kg of export grade peas, compared to 30,043 kg in Price paid to farmers was TSh1,700 per kg compared to last season s TSh1,600 per kg, resulting in total income to farmers more than double from the previous season. Total number of farmers which Homeveg TZ has engaged with is 1,200, although only 296 farmers actually planted in the recent ending season. This is due directly to support from the Farm Africa grant that has enabled Homeveg to reduce transport costs and wastage through improved grading and sorting at farm level. This has increased throughput and allowed more farmers to be included as export growers. Company turnover from recent harvest was TSh 240 million ( 104,278), which they expect to increase significantly in the next three to five years. Scale up Rounds 1 and 2: In addition to the above, two scale up projects have been approved and are currently in implementation: a) Upland Rice & Legumes - Uganda The Upland Rice & Legumes Project is a three year scale up from the MATF and is being implemented directly by Farm Africa in central Uganda, working through local partners and district governments in Luwero, Nakaseke and Nakasongola. The project is funded by the Alliance for a Green Revolution in Africa (AGRA) and aims to reduce poverty and improve food security for smallholder rice, legumes and maize farmers by promoting the uptake of technology, including improved seed varieties and improved soil fertility management (ISFM) techniques including compost and manure production, intensive crop rotation and the supplementary application of inorganic fertilizers. It also seeks to increase the capacity of farmer groups and associations in management, entrepreneurship, collective marketing and product aggregation to reduce transaction costs and attract buyers with commercial lots of standard quality grains. Groups are trained in governance, financial record-keeping, farm management and product commercialization to more effectively engage in value chains for each of the commodities. The project has reached 18,448 of their targeted 18,000 farm households. 12

14 There has been a significant increase in acreage of planted crops, with an average increase of from 1 to 1.2 acres of planted maize per farmer and an average increase from 0.75 to 1 acres of planted rice per farmer. There has also been an increase in household production of maize by 152%; of upland rice by 276%; and of legumes by 29%. Farmer groups have organised into marketing associations and a partnership has been developed with Infotrade to disseminate timely marketing information. After slight delays, 10 sites have been selected for the construction of warehouses which producer groups will use to aggregate their produce. These will be in place before the harvest in June Marketing groups are currently negotiating to agree on methods for managing the warehouses, one possible option being a warehouse receipt system. The project team has conducted consultations with participating farmers and has identified key constraints to crop production and marketing. These discussions have contributed to microfinance institutions like Eclof and NAADs considering agricultural microfinance programmes, as well as a government tractor hire programme. The project is now in its last three months but has experienced some delays in implementation at an earlier stage caused by limited availability to improved seed varieties, so the donor (AGRA) have agreed on a 6-month extension that will enable the project to meet its key objectives by September b) Local Poultry Production and Marketing - Kenya The Local Poultry Production and Marketing Project started in March 2013 with funding from The Big Lottery Fund and builds on a model developed under the MATF. The project targets 3,000 farm households, impacting more than 16,000 people in Kitui, Kenya. The project is being implemented in partnership with Kitui Development Centre (KDC), supporting poultry farmers to learn and practise improved poultry husbandry techniques and increase poultry productivity to a commercial level. It also supports the formation of farmers groups and a Producer and Marketing Association to establish strong and profitable market links. Training improved poultry production is taking place on 4 demonstration sites in the region. The project distributes hens and cockerels to enable farmers to quickly build up a commercially viable flock size. Genetically improved cocks are used for cross-breeding. Marketing associations are being linked to agro-vet stores which sell affordable and quality inputs for the poultry enterprises. A series of best practices will be published and shared to disseminate the lessons learnt by the end of the project. Demonstration sites have been established in four locations, each with the capacity to house 100 chickens. The project has identified, selected and mobilised 57 farmer groups with 1140 members. The project has provided drought-tolerant crops to farmers which are being used to produce a sustainable source of chicken feed. Value chain analysis has been conducted to identify financial institutions and input suppliers to be involved in poultry marketing. Farmer groups have been supported to access agro-vet supplies. The project has now entered its second year, when we expect to see significant improvements in the size of clutches and poultry health, as well as secure access to poultry markets and increased consumption of protein in the project area. 13

15 Termination of two grant agreements: The Kabarole District Farmers Association (KDFA) in Uganda was awarded a grant of 80,000 in April 2012 to increase maize production and to fund processing equipment for more than 1,800 smallholder farmers. The approach was to adopt a cooperative model for farmers to reach profitable markets and generate new income from their processed maize and other grains. An evaluation carried out in November 2013 indicated unsatisfactory progress on implementation and a question mark over reported results in addition to the association being unable to account satisfactorily for all of the funds received. A further enquiry involving beneficiary farmers revealed that KDFA officers had not consulted them to agree on project activities and had carried our very few of the responsibilities required by the grant agreement. Despite numerous attempts to gather information and engage constructively with the grantee, information was not forthcoming. Consequently, the agreement was terminated in January 2014, with the outstanding grant monies held back. This was an example of the type of poor governance, unethical business practices and poor financial controls that are present to a lesser degree across a wide range of rural NGOs and small businesses providing services to smallholders. Consequently, Farm Africa has introduced a cross-cutting emphasis on training in finance and business ethics that is being rolled out internally and will be provided to all current and future grantees starting in The Social Economic Research and Training Association (SERTA) was awarded a grant of 80,000 in April 2012 to improve the livelihoods of small scale women farmers of seaweed in Zanzibar. This is a traditional cottage industry that has received donor funding almost continuously for more than ten years but failed to grow into a profitable enterprise for the women. SERTA hoped to create stronger commercial linkages that would exert a market pull to take advantage of the production techniques learned previously by the women. Project monitoring visits revealed that no new market relationships had been created, prices had not increased and women were often unable to sell or forced to accept prices that were below their production cost. Demand went up and down unpredictably depending on global market factors beyond the control of this type of project. Numerous follow up field visits were made and advice provided by Farm Africa staff to diversify away from the existing cartel. Unfortunately, these were continuously ignored. In retrospect, the first activity should have been a realistic market demand analysis before funds were released. The project s success hinged on certain assumptions made about the value chain: that there was an unmet demand for powdered seaweed, that farmer organizations would be able to exert a significant influence on price. Since reliable market relationships are essential for improving livelihoods, this example highlights the need for market research that will precede all future MAEF investments in product development. The project was terminated in January 2014 with only half of the grant having been transferred. 14

16 4. Challenges and Lessons Learned Managing an investment fund that bridges the gap between grants and venture capital is a high risk challenge but we believe that it will contribute to development of a new model for smallholder commercialization that is urgently needed. The specific challenges and key lessons learned from MAEF implementation so far include: Difficulties in identifying viable businesses and extremely low private sector capacity in the marginalised rural areas being targeted. Business support services will need to be increased even more in future to increase capacity. Lower growth rates than planned, largely because the organisations selected in the first value chain round were mainly non-commercial organizations lacking strong links into sustainable markets. Future investments must be more flexible to reach for-profit companies embedded in the rural communities being targeted. A funding model tied to rounds and a fixed number of grants lacks the flexibility required to react quickly and strategically when new opportunities arise. The model needs adapting to meet the specific needs of the companies being targeted. Local staff assigned to manage the fund, though highly technical, demonstrated a shortage of business skills. More internal training and specialised technical support for core staff will be necessary in future to increase the success level of the fund. Activities in the final quarter addressed these challenges including a thorough and critical review of the Fund s methods, staffing and grantee achievements to date. As a result, a revised concept was developed that builds on past experience but differs in several significant aspects from the original model. As part of this re-alignment, two grants were terminated based on their performance appraisals. The initial design of the Fund did not account for its own sustainability outside direct donor funding for the activities and management costs. This model is being adapted and customised by Farm Africa to introduce more flexibility in fund management and test financial models that will sustain the Fund itself as well as focusing on creating sustainable farm and business enterprises for its clients. 15

17 5. The Revised Funding Model Based on the lessons of the last three years, we have made several significant and key changes. At organisational level a new Country Director was appointed for Kenya with strong management skills and specialised knowledge in smallholder commercialization. She was charged with evaluating and restructuring the portfolio to create new business and marketoriented models based on smallholder grown crops and products. A new management structure is being brought in with recruitment focusing on business skills to complement Farm Africa s strong pro-poor agricultural team. These changes will equip Farm Africa with a strong and experienced team and organisational structure to address the changing needs of smallholder-supplied value chains, in partnership with the agro-enterprises that provide essential input and output services. Advisory board Board members will have a strong commercial focus and will themselves be experienced entrepreneurs, agri-business manager, investors and financiers. The advisory board will play an integral role in the selection of enterprises and mentoring of entrepreneurs as well as ensuring MAEF maintains a strong commercial orientation. Selection Individual entrepreneurs are critical to the success of small enterprises. The selection process for the Enterprise Fund will focus on the business skills of these entrepreneurs and their engagement with smallholder farmers. Potential grantees will be required to develop a simple business plan and pitch this to the advisory board, which will have the opportunity to interrogate both the business plan and the individual entrepreneurs themselves. Making companies investable Although the MAEF is essentially a grant or non-returnable investment mechanism directed at farmers via SMEs, it is designed to prepare the beneficiaries for commercial loan and investor finance when Farm Africa support ends. The Fund will work in close partnership with impact investors and providers of commercial finance to ensure that there is a clear process to scale up successful businesses and to provide access to differentiated capital as appropriate. Systematic business training A key outcome of the Enterprise Fund s work will be to support small businesses to improve their business processes and systems. Farm Africa will develop a systematic business training component based on existing knowledge and experience in the region, in a format that is appropriate to and accessible for small business owners. Embedding cost Beneficiary businesses will be required to treat their farmer outreach as an overhead or embedded cost built into the price of the service or item being sold to the farmer, or into the price paid to the farmer for products being bought. This will ensure sustainability throughout the value chain as Farm Africa gradually phases out its grant support and links the businesses to other sources of investment. 16

18 6. Financial Report Of the overall grant commitment of 1,000,000, so far 607,025 has been disbursed, of which 506,112 has been spent (50%). The current balance held by Farm Africa is sufficient to continue with project implementation until July The remainder of the grant commitment which is to date about 50%, remains on target to complete the project as designed by Table 1: Original budget against expenditures to date (Euro) Description Project Lifetime (PLT) Budget Expended to Date. (Feb 2014) Remaining (from total budget) Personnel costs 459, , ,887 Capital costs 70,064 59,634 10,430 Office running costs 76,511 32,359 44,152 Travel costs 65,116 24,101 41,015 Project selection, monitoring & evaluation costs 186,520 98,617 87,903 Documentation & dissemination costs 41,190 5,235 35,955 Administration (7% of project support costs) 62,892 33,997 28,895 Contingency Fund 38, ,650 TOTAL 1,000, , ,888 Table 2: Revised budget based on income received to date (Euro) Description Project Lifetime (PLT) Budget Budget (income received to date) Expended to Date Projected to July 2014 Remaining Personnel costs 459, , ,170 34,874 (8,385) Capital costs 70,064 42,531 59,634 - (17,103) Office running costs 76,511 46,444 32,359 14,085 - Travel costs 65,116 39,527 24,101 17,808 (2,381) Project selection, monitoring & evaluation costs 186, ,222 98,617 8,050 6,555 Documentation & dissemination costs 41,190 25,003 5,235 5,000 14,768 Administration (7% of project support costs) 62,892 38,177 33,997 5,587 (1,407) Contingency Fund 38,650 23, ,000 8,462 TOTAL 1,000, , , ,

19 Annex 1: MAEF Project Summary - Active Grants Project Country Location Round 1 Mango Processing Passion Fruit Production Climbing Bean Production Pineapple Production Round 2 Cassava Value Chain Soya Value Chain Cashew Value Chain Pigeon Pea Value Chain Sorghum Value Chain Export Fruit & Veg Value Chain Scale-Up Indigenous Poultry Type of Grantee Kenya Kitui NGO Kenya Uganda Tanzania Uganda Kwale County Kisoro and Kabale districts Bagamojo Rwenzori Research Organization Research Organization Private consultancy Private consultancy Donor NFU Farm Africa Melbreak Trust Melbreak Trust Melbreak Trust Grantee Targeted farmers KDC 800 KARI 3,000 NaCRRI 2,000 DORT 1,000 PRICON 2,000 Uganda Ruberizi NGO VEDCO 2,000 Kenya Lamu Buyer/exporter Ten Senses 2,000 Kenya Makueni Buyer Rockefeller IDEAL Foundation Matunda 1,500 Kenya Makueni Buyer/trader Mwailu Enterprises 2,000 Tanzania Lushoto Buyer/exporter HomeVeg 2,500 Kenya Kitui NGO Big Lottery KDC 3,000 Upland Rice Uganda Luwero NGO AGRA Farm Africa 18,000 Total 39,800 18