WEBINAR: Contractual relationships and contracting arrangements in the agrifood sector

7 July 2021. Contractual relationships and contracting arrangements in the agrifood sector by COLEACP and the Foundation for World Agriculture and Rurality (FARM foundation)

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In commercial agriculture, contracts coordinate production and trade, linking input suppliers to producers, all the way to end buyers. A better understanding of these chains of contracts can enable development practitioners and policymakers to increase scope for rural producer agency. Experts from research, policy, finance and private sector discussed the various practices and the opportunities and challenges, the existing models present for smallholders and value chain actors involved in the agriculture and agrifood sector.

Lorenzo COTULA, Principal Researcher, International Institute for Environment and Development (IIED) - Contracts in commercial agriculture: enhancing rural producer agency

Lorenzo Cotula summarised his recent research analysing of a pool of 40 contracts, examining the extent to which producers have a voice in contracting and related policy processes; how contracts affect options for rural producers; whether buyers’ obligations create opportunities for farmers to exert agency; and how arrangements affect producers’ ability to respond to risk.

INSIGHTS FROM POLICY AND PRIVATE SECTOR

Policy is a key enabler in support of fairer contractual arrangements which benefit smallholders and support the entire value chain in the agricultural and agrifood sector. This includes supportive policies as well as innovative financing schemes and impact investment facilities providing medium to long-term financing to private sector enterprises. The panel included private sector operators across various value chains. 

• Aude SAUVAGET, Investment Officer, EFDI AgriFI 
• Marlène AMEGANKPOE, Director General, SCS International, Mali 
• Jonathan MICHAUD, Managing Director, Kossam SDE, la Laiterie du Berger, Senegal

Background: EDFI-AGRIFI (Agriculture Financing Initiative)

The EDFI-AgriFi is a Facility of the EU which aim is to provide long-term finance and/or working capital needs in the form of debt or equity, on commercially-oriented terms, to MSMEs active in agri-food value chains and involving smallholder farmers in low and lower-middle income country, but with a focus in Sub-Saharan African countries.

Because it is fully financed by the EC with 39.7 M EUR, unlike the other blending projects, the “blending” is done at the investment level by mobilizing co-financing from European DFIs and other investors. This is also the reason why EDFI-AGRIFI provides more flexibility and allows to take higher risks than other DFIs and private investors on their own, thereby being able to invest in earlier stage projects/SMEs; provide smaller and or longer tenor loans; etc. With a ticket size ranging from 0.5 to 5 million Euros, EDFI-AgriFi therefore addresses the “missing middle” by investing in young and growing businesses that have a clear development impact and that need financing to grow but they are not big enough to obtain financing from local commercial bank or international investors

The contract was signed in December 2017 with the FMO (the Dutch DFI - www.fmo.nl) for a duration of 15 years, who sub-delegated in turn the implementation of the Facility to the EDFI Management Company, an association of 15 European DFIs based in Brussels. It also includes 10 M EUR for Technical Assistance.

AgriFIs’ innovative high-impact smallholder financing provides an integrated approach towards smallholder service delivery models, which typically includes the full spectrum of training, pre-financing of inputs, marketing and value adding services. Over the last few years new initiatives have been started in this segment, taking advantage of mobile technology to lower transaction costs. Through these interventions, companies in AgriFI’s portfolio improve food security and support the creation of new jobs – an approach that directly contributes to the Sustainable Development Goal (SDG) 1 (reducing poverty) and SDG 2 (fighting hunger).