Investment Climate l World Bank Group Nuts & Bolts Technical Guidance for Reform Implementation Public-Private Title Here Dialogue for Specific Sectors: Agribusiness World Bank Group Public-private dialogue (PPD) is a structured engagement mechanism of new agribusinesses and expansion of existing ones by: that aims to bring together all relevant stakeholders, in a balanced • Providing well-trained extension and inclusive manner, to assess, prioritize, and achieve sustainable services. results. Sector-specific PPD can provide an integrated response to • Having food safety regulations in factors constraining sector growth and improve the pace of sector line with global best practices and reform. It can be particularly helpful in improving competitiveness standards. and provide a highly valued platform for collaboration along the • Financing research oriented toward supply chain and across governments, businesses, and communities. industry needs. Sector-specific PPD can also be implemented at a subnational or • Offering facilities to increase access to finance to small and medium regional level. enterprises (SMEs). • Setting up policies that facilitate the adoption of product standards. The role of agribusiness in population expected to reach 9 billion • Ensuring a legal environment people by 2050, with a substantial favorable to input and output development increase in animal protein consumption markets. The World Bank Group aims to support due to rising incomes and higher the private sector in addressing Securing inputs demand for biofuel products. rising global food demand in an Improving access to quality and environmentally sustainable and socially Access to markets and meeting competitive inputs is key to increasing inclusive way so that agribusiness can requirements productivity and meeting market- significantly contribute in reducing Demand in both developed and end requirements. In developing poverty over time. In many developing emerging countries for higher-value countries, supplying seeds, fertilizers, economies, agriculture and agribusiness1 agricultural products is expected to pesticides, irrigation equipment, and are an important source of jobs, rise in the coming years. Yet serving machinery to the agricultural sector incomes, and investments, while this new class of consumers with is often constrained by outdated and contributing to food security. The discretionary income for food products burdensome legal and regulatory issues, weight of agriculture often accounts for requires substantial private investments as well as monopolies. As a result, very more than half of the gross domestic along the value chains, research and few farmers are able to offer agricultural product and employs an even larger development efforts, good agricultural products that meet the quality, quantity, share of their populations. Agriculture and post-harvest practices, productivity, and price requirements set by local or and agribusiness in Sub-Saharan Africa traceability, adapted storage and international markets, food processors, amounted to $313 billion in 2010, a logistical capacities, and managerial and retailers. At the post-harvest level, figure expected to rise to $1 trillion by and marketing skills. At the same time, the issue of sourcing quality agricultural 2030.2 Long-term demand for food the public sector should ensure that the products in specific quantities poses a products will be fueled by a worldwide environment enables the development real threat to processors and exporters, Public-Private Dialogue (PPD) for Agribusiness 1 and difficulties in purchasing input material such as packaging and food additives often challenge the sector’s Key Issues for Investments in Agribusiness viability. Despite the bright commercial outlook for food products, a number of underlying factors will continue to put Infrastructures and investments pressure on the agribusiness industry: Access to physical infrastructures such as ports, warehouses, • Availability of land and water for cultivation. laboratories, and communication technologies plays a crucial role in connecting farmers, processers, traders, and • Volatility in food prices. market ends, lowering the cost of doing business, and • Rising energy and agri-inputs costs. sending positive signals to domestic and foreign investors. Logistical and storage infrastructures such as primary, rural, • Stringent food safety, social, and environmental and secondary roads, as well as railways, warehouses, and standards, and certification requirements. cold storage, are crucial for moving goods and maintaining • Impact of climate change on weather patterns. their quality, while information and communication At the same time, agri-food companies in developing technologies provide farmers and SMEs a vast array of economies face a wide range of operational, structural, essential information. Though it is commonly agreed that and policy challenges that have an adverse effect on the governments should build and maintain such essential public investment climate and local economic development. infrastructure, budgetary constraints and gaps with industry Adopting a strategy that catalyzes agribusiness will needs often limit the appetite of private sector investors. address the development of post-harvest as well as production-level activities, the need to shift to Meeting the financial needs of agribusiness commercial agriculture, and the need to incorporate stakeholders SMEs into local and international value chains. Finance is an important catalyst for the development of Other key agribusiness issues that could be tackled by agribusiness. Access to capital affects the ability of operators PPD mechanisms include access to markets, production along the value chain to source the necessary inputs (such and processing inputs, addressing infrastructure as seeds, agro-chemicals, and farming machinery) to build bottlenecks, and financial needs of value chain a competitive production base, undertake the required operators. investments (such as acquiring processing equipment or transportation materials, and building storage space), and capitalize on the growing demand for food products. Banks and other financial institutions in developing countries often perceive too much risk and are reluctant to extend credit to the agribusiness sector, and this lack of a strong lending Key principles for effective PPD engagement history penalizes private sector growth and discourages in agribusiness operators from adopting sustainable and inclusive actions. When credit is available, it is at a steep cost, hindering the A cookie-cutter approach to PPD does not work. There is overall competitiveness of producers and agro-processors. no one ideal format that works for all types of dynamics, stakeholders, and issues to be addressed. Being adaptive and The banks’ perceptions of high risk are due to various factors, flexible while following key principles to a particular sector such as: is necessary. The following principles should be considered • The sector’s idiosyncrasies (weather and price risks, as PPD mechanisms are developed to support reforms that production patterns, and public interventions). address gaps in the agribusiness value chain. PPD can help • Absence of a suitable legal and regulatory environment in linking agricultural production to food processing and promoting agribusiness financing. distribution activities along the value chain (see Figure 1). • Issues associated with poor production and post-harvest 1. Prioritize issues. PPD in agribusiness mobilizes small to practices that affect product quality and availability. large operators as well as policymakers and stakeholders directly involved in agri-food sectors, such as cereals, cattle, • Sufficient collateral or transparent record-keeping by and horticultural products. Each PPD platform fosters farmers. dialogue to not only get consensus on a common sectoral • Uncertainty over return on investment. vision, but also foster agreement on key constraints penalizing private sector operators and how they will • Lack of SME owners’ business skills. be lifted through policy reforms and interventions. The • Challenges associated with property rights. dialogue should initially focus on a few cross-cutting issues, 2 Investment Climate l World Bank Group preferably on value chains that present strong competitive estimated 35,000 farmers have benefited from a wider advantages and market growth potential. Tackling all the range of fertilizers and crop protection products (400 new issues and products at once can jeopardize the achievement products registered in the past year) and lower prices of of any complex reforms or those addressing specific some chemicals (by as much as 9 percent). bottlenecks. Dealing with the most pressing challenges will allow for optimal use of available technical and financial Case example: The cashew industry in Côte d’Ivoire support, showcasing the positive impacts of successful The country’s cashew sector faces many issues, which have implementation and generating momentum for further been identified and classified according to their impact and reform. the main objectives of the project. This exercise yielded the project’s top priorities, including: Using the value chain approach, a key framework for understanding how a product moves from a producer • Increasing volume of raw cashew processed in the to a customer or consumer, is critical to understand the country from 5 to 20 percent and attracting new governance and performance of the agribusiness sector. processor companies. Such an approach is useful in understanding the existing or • Establishing a formal warehouse receipt system potential business-to-business relationships, the mechanism supported by legislation and a dedicated regulator by end for increasing efficiency, and ways to enable business to of 2015. Figure 1: AgribusiNess Value ChaiN The PPD platform will help address these issues. Inputs Production Processing Distribution • Agriculture equipment • Agricultural production • Fresh food processing, • Markets companies manufacturing • Supermarket • Service companies • Consumers (research, finance) • Seed companies increase and add value. A PPD platform would offer such 2. Analyze the governance and performance of the opportunities. sector. Governance will help identify the types of relationships among the actors of the value chain and verify Case example: Agricultural inputs in Honduras if relevant and timely information is being shared among In Honduras, agribusiness accounts for about 13 percent them.3 An analysis of the sector’s governance will help to gross domestic product and produces more than two- shape how PPD is organized. In agribusiness, government thirds of all exports. However, key agriculture inputs such tends to share responsibility with the private sector as pesticides and fertilizers cost more than in neighboring counterparts in managing the sector. In many countries, countries, and variety and quality are limited, affecting the private sector actors of agribusiness value chains are the sector’s international competitiveness, profitability, organized as an inter-professional association, which is and productivity. Past regulations intended to ensure the composed of representatives of professional organizations safe use of fertilizers and pesticides have benefited certain in production, processing, and trading, and officially suppliers, and cumbersome registration procedures have recognized by the law. delayed commercialization of potentially better products. Case example: The peanut industry in Senegal With World Bank Group support, the Honduran Secretary of Agriculture and Livestock is introducing reforms that The country’s peanut industry is mainly managed by an increase competition in the agricultural inputs market. An inter-professional association. The association has a Public-Private Dialogue (PPD) for Agribusiness 3 Who are the Relevant Agribusiness Sector Stakeholders? PPD intervention can foster dialogue, collaboration, and communication within and between the following stakeholders in the agribusiness ecosystem. This will help overcome the key issues identified, promote investment, and provide further reform. Government. The government has a role to play in organizing the sector by defining its policies, setting standards, and ensuring inspection and control. It also has to make sure that its agribusiness policy profits the country, adds jobs and employment, alleviates poverty, and attracts investors. The government has the responsibility of regulating the sector, which can be done in the following ways: • The agribusiness sector can be regulated through an inter-professional association, entirely composed of private sector stakeholders (in the case of the peanut industry in Senegal). • It can be regulated through a board with public and private sector representatives. For example, in Kenya, the coffee industry is regulated by the coffee board and the coffee act, which stipulates coffee be sold through weekly auctions and requires that companies in each area of activity be licensed. PPD offers the government a systematic approach to better coordinate its actions concerning the agribusiness sector, which can involve numerous government entities such as the ministries of agriculture, trade, and industry. Donors. Donors play a key role in agribusiness in supporting countries going through the reform process, building roads and infrastructures, providing equipment to producers, and building capacities. However, donors may be perceived as having an agenda to impose their views in the sector and defend their own country interests. A PPD platform is crucial to ensure that the sector is managed by involving all stakeholders. Producers. Producers make the product or commodity in its raw stage. They can be organized in cooperatives or other forms to strengthen their business in contract farming or joint ventures with international firms (for example, in Ghana, Olam International is in the cashew sector; Unilever is in the palm nut sector). Ideally, producers are provided with inputs (such as good quality seed) and training, and they have guarantees for selling their products (such as in the many contract farming examples in African countries). Producers are critical in the value chain as productivity of the sector is dependent on the quality of their inputs and their equipment. A PPD platform is important in urging them to be better organized and play a key role in the sector. Traders. Traders can be buyers of small quantities which they sell to exporters, or they can be wholesalers working with raw product exporters. Traders also sell to processors at a national or international level. Traders may work informally in some countries. When they sell abroad, they are mainly concerned about the international markets’ requirements in terms of quality and traceability. They also act as retailers or wholesalers of processed food products. Processers and distributors. They can be national SMEs or international firms with partners in the host country. Most African countries face the challenge of processing the product in-country. Once the product is processed, distributors, retailers, or wholesalers bring the products to market. In some cases, linkages and partnerships between processors, distributors, and retailers are used to meet the requirements of the value chain and external markets. Consumers. They are important actors because they create demand and thus, determine market size. Producers, processors, and exporters customize their offerings and delivery to satisfy consumers’ purchasing power, tastes, and demands. Consumers in developed countries are increasingly concerned about the origin of their foodstuffs, the way the commodity has been produced, whether the product is certified, and whether the seller is respectful of human rights in bringing the product to market. Nongovernmental and civil society organizations. They are key players typically organizing farmers and building individual farm capacities. They can be vocal in opposing agribusiness policies, and as such, should be actively involved as stakeholders when agribusiness policies and projects are introduced. Media. The media can be supportive in facilitating communication between stakeholders and raising the profile of agribusiness. But the media can also fuel negative perceptions about the sector. It is crucial that the media be actively involved in the dialogue, so key press organizations can understand the issues and accurately report on the sector and its role in the government’s plan for growth and development. 4 Investment Climate l World Bank Group mandate to defend the common interests of its members, entire supply of mangoes will come from the firm’s contract fix the peanut price based on indicators and the world farming arrangements with local farmers. Supply volumes market prices to ensure productivity improvement, and are critical and this system, with all necessary skills and facilitate negotiation among its members. The government support, will ensure supply. Malawi Mangoes is expected has responsibility for defining, controlling, and monitoring to begin the country’s formal trade of mangoes, providing policies and regulations. farmers with top grafting technology, training, field officers, and necessary transportation arrangements.5 Case example: Rwanda’s structure for the governance of horticulture 4. Develop good communications. Some civil society organizations and citizens have negative views of In an effort to increase export diversification, horticulture agribusiness because they associate the sector with has been declared one of the top government priorities land grabbing. Protests against agribusiness investors in in Rwanda. Although the industry offers considerable some countries have accused the government of taking opportunities in terms of export, it was not reaching its full and selling community lands and other policies the potential. Significant intervention and coordination on the protestors believe hurt local farmers. In Brazil, conservation part of both the private and public sectors was required nongovernmental organizations accused the sector of to unlock this potential. The government constituted a non-environmentally sustainable practices in the Amazon horticulture task force to formulate the legal framework agribusiness that have resulted in loss of the forest’s which established the Rwanda Horticulture Development biodiversity. These organizations have also characterized Authority and to draft its business plan. The Rwanda agribusiness in the rainforests of Brazil and South East Asia Horticultural Development Authority was merged with as activities carried out against the rights of indigenous other authorities into the National Agricultural Export people. Transparent and strategic communication is Development Board, which supervises, facilitates, and necessary to dispel such misconceptions. trains private operators and cooperatives involved in agricultural and livestock production for export. In addition, the Rwanda Horticulture Interprofessional Organization, a Conclusion private independent organization, serves as an instrument PPD offers stakeholders the opportunity to identify problems to mobilize all public and private efforts in developing the and suggest solutions in a safe and structured environment, horticulture sector. and it helps address and overcome issues of good governance and communication between public and private actors. It 3. Create linkages. The value chain in agribusiness works is a tool as well as a process that enhances transparency, well when its stakeholders cooperate for the greater good. accountability, and sustainability around reforms and other However, this can be a challenge in sectors exhibiting a outcomes that will ultimately improve the investment climate, lack of leadership, information, or scale. PPD mechanisms foster growth, and create jobs. can help stakeholders, even competing product and service providers, build trust and enhance collaboration in working Proposed reforms, supported by a follow-up mechanism, for larger industry-specific goals that benefit all players. aim not only to reduce the costs and risks of doing business Creating linkages and building alliances, such as producers’ in the agribusiness sector, but also to harness private associations, are crucial “for drawing up and adopting investments into upstream, downstream, and cross-sectoral commitments and for facilitating the required collaboration value chain components. This ensures that environmental to access resources, foster the creation of mutual capacities and social sustainability aspects are taken into account in any between the parties, and lay the foundations for innovative intervention. PPD also plays a unique role as an innovation and solutions to achieve results that would be hard to achieve learning platform, where new ideas and win-win opportunities in isolation.”4 Linkages can be dictated by food safety and are shared by all stakeholders. quality control requirements to access some markets. PPD can help facilitate alliances in which international and local companies work with the farmers, cooperative, or those at the cultivation level to control the commodity production process. In these cases, companies may sign contracts with farmers in delivering their foodstuffs to market. Case example: The mango trade in Malawi Malawi Mangoes is a start-up that aims to become the country’s first large-scale fruit processing facility by capitalizing on a worldwide gap in supply of fruit pulp. A banana plantation will provide raw banana supply, but the Public-Private Dialogue (PPD) for Agribusiness 5 Analysis and note prepared by Birima Fall, David Ivanovic, and Steve Utterwulghe (Investment Climate Department, World Bank Group). The findings and views published are those of the authors and should not be attributed to IFC, the World Bank, the Multilateral Investment Guarantee Agency (MIGA), or any other affiliated organizations. Nor do any of the conclusions represent official policy of the World Bank or of its Executive Directors or the countries they represent. The Investment Climate Department of the World Bank Group helps governments implement reforms to improve their business environments and encourage and retain investment, thus fostering competitive markets, growth, and job creation. Funding is provided by the World Bank Group (IFC, the World Bank, and MIGA) and over 15 donor partners working through the multidonor FIAS platform. Notes 1 In this note, agribusiness refers to commercial activities related to input delivery, production, post-harvest and processing, and marketing and distri- bution. 2 World Bank, Growing Africa: Unlocking the Potential of Agribusiness (2013). 3 Extracted from J. E. Austin Associates, Using Value Chain approaches in Agribusiness and Agriculture in Sub-Saharan Africa (2007), prepared for the World Bank. 4 Course on agribusiness management for producers’ association: Module 2 – Organization principles for producers’ associations, FAO (2009). 5 Extracted from the Practitioner Hub for Business Innovation Facility, Inside Inclusive Business Issue No. 6, June 2013. The Practitioner Hub has been de- veloped by the Business Innovation Facility and Innovations against Poverty to provide a space for practitioners to connect, share experiences, and gain new insights to help their inclusive business ventures grow. Contact Steve Utterwulghe l Global Lead, Public-Private Dialogue l Investment Climate Email: sutterwulghe@ifc.org TEL: 1-202-473-3203 www.wbginvestmentclimate.org 6 Investment Climate l World Bank Group