noVemBer 2008 47117 aBouT The auThors Well-structured agribusiness linkages Projects VikToryia menkoVa lead to happy clients and a Developed sector is the operations analyst for iFc corporate advice/linkages projects in eastern europe and Despite the large potential of the agricultural sector in Eastern Europe and Central central asia. she joined iFc in Asia, production is still limited by a lack of technical knowledge and, in many cases, 2005 as a research assistant for the Belarus Bee project an unwillingness to change agricultural practices inherited from Soviet times. The and moved on to linkages in 2007. Prior to iFc she worked problem has more than one cause: poor technology, management skills, and quality for the Private investment of produce prevent farms from joining agribusiness supply chains. Limited access to Fund sigmaBleyzer in ukraine. financing further prevents farmers who want to improve practices from making the sanWaree seThi investments needed to achieve better productivity and efficiency. This situation is is the results measurement officer responsible for iFc's further complicated by an unfriendly regulatory environment, specifically, land advisory services projects in ownership issues and corrupt state subsidies systems, which distort the market. eastern europe and central asia. IFC Private Enterprise Partnership in Eastern Europe and Central Asia (IFC PEP-ECA) has developed a comprehensive approach to tackling each of these issues in its aPProVing manager ivan ivanov, senior operations agribusiness projects; this approach has also been affirmed by the Independent manager, iFc corporate Evaluation Group. advice/linkages in eastern europe and central asia. Background this note outlines key aspects of implementing agribusiness supply chain advisory services In 2006, PeP-eCa underwent an in-depth projects in the eCa region and analyzes the evaluation by the Independent evaluation lessons from IeG, as well as the driving forces Group (IeG). PeP-eCa has been conducting that contributed to success or failure in advisory services projects in agribusiness since achieving sector development. thelate1990s,1 andtheIeGevaluationreviewed both active and closed agribusiness advisory Lessons Learned services projects. 1) A strong pull factor is key to convincing the lessons from this evaluation, coupled with farmers to implement changes. years of experience on the ground, have been incorporated into PeP-eCa's current model for experience shows that an anchor processor mo- agribusiness advisory services projects: tivates local farmers to adopt quality standards, upgrade technologies, and improve their op- erational practices. Producers of milk, fruits, and/or vegeta- bles are more willing to utilize IFC's advice if they feel confident their produce will be bought. moreover, the processor may be even willing to pay farmers a premium price for produce that meets their requirements. the IeG evaluation showed that projects 1 In total, 10 agribusiness projects have been launched in the region. Currently, there are four active agribusiness supply chain projects: threedesigned around an anchor client had higher in Ukraine and one in Tajikistan IFC SmartLeSSonS -- noVemBer 2008 1 development effectiveness ratings than those that did Issues to bear in mind: not. · Ownership of an advisory services project: An anchor company should be fully committed to an advisory services project and take ownership of it as much as IFC does. This can be achieved through extensive en- gagement with the anchor company from the project design stage and signing of an Advisory Services Agreement; and · Memorandums of understanding (MOUs) with farms: Farmers should also feel a responsibility to the IFC project. However, sign- ing an MOU does not necessarily make a farm- er more committed. Experience shows that some farmers did not treat MOUs as serious legal documents. It is important to thoroughly screen farmers up front, to ensure their com- mitment, and properly convey the meaning and implications of partnering with the IFC project. this lesson has been incorporated in recently developed 2) Access to finance (A2F) issues must be addressed. projects by ensuring that they are designed around an anchorcompanyinordertoachievetargeteddevelopment analysis of the agribusiness sector in eCa has indicated results2. examples of when this has worked well and not that there are two main factors that inhibit access to so well are provided below: financing: banks have little understanding of sector specifics and risks; and farmers have little understanding of the banks' credit culture and are scared of loans. Tajikistan Supply Chains Southern Ukraine therefore, in order to address access to finance issues, IFC Development Project Supply Chain chose to target both banks and farmers. (Anchors: Geha Food ­ Development Project tomatoes, Dushanbe (Anchor: Sandora Juice Dairy ­ milk) Company) Example: Southern Ukraine Supply Chain Development Project Geha Food initially agreed "Jointly with the project Vegetable producers in mykolaiv were facing challenges in accessing to work with the IFC specialists, we had two finance because credit officers did not differentiate among vegetable project, but then failed to pilot programs on and grain producers when appraising loans. through extensive ensure intake of tomatoes processing carrots and discussions and public events (conferences and round tables), IFC was that farmers had planted tomatoes. I can say with able to convince one of the leading banks to abolish its limit of specifically for Geha, certainty that the quality US$60/hectare for lending to vegetable producers in the mykolaiv choosing to buy harvested of vegetables supplied for region. as of today, the project has helped its pilot farms raise about produce instead. as a processing has improved US$4 million from banks. as a result, farmers were able to invest in result, farmers lost trust in considerably due to good combines and replace manual labor with more efficient machinery. the company and the hybrid seeds, new growing following year they either technologies and combine reducedtomatoproduction harvesting. all these or refused to supply to changes were facilitated tomato Harvesting: Initial Improved process with modern Geha at all. eventually, the by the project helping our process equipment company decided to pull suppliers to be more out of the project. as a competitive and run result, the tomato sustainablebusinesses,and component of this project ensuring that Sandora has is likely to be terminated. a stable supply of the project is continuing vegetables for its dairy supply chain processing." work. -Elena Kurik, Sandora "Cooperation with the project brought a new vision and a new approach. We estimate Production Manager that directly, and indirectly, the project helped us to extend our agribusiness credit line [in the Mykolaiv region] by more than UAH 100 million (~20M USD)." - Elvira Alekseeva, Deputy Director for the Mykolaiv branch of Raiffeisen Bank 2 For more details on the impact of anchor companies, please see Ebbe Johnson's Smart- Aval Lesson, "A Juicy Story - Using the Pull Factor to Build an Agricultural Supply Chain": http://smartlessons.ifc.org/lessonlisting.asp?id=233 2 IFC SmartLeSSonS -- noVemBer 2008 Issues to bear in mind: Issues to bear in mind: · Banks are financial creatures and are new to agribusiness: The IFC project must change the mindset · Criticalmass:Itisnecessarytoaccumulateacriticalmass ofabank'screditofficerstowardagriculture,toeducate of legal cases that farmers regularly face (i.e., a way to them about the risks, and to show them the potential legalize farmers' rights for their land plots) to get this of the agribusiness sector. In order to formulate a well- issueontheagendaofregionalornationalpolicymakers structured and digestible message for the banks and to and have regulatory improvements. It is important for gain trust, projects should conduct extensive sector projects to keep this in mind and be strategic about analyses and be well equipped to address any questions which legal issues to target; the bank staff might raise; · Regional vs. national level of policymaking: In some · Farmers are often scared of bank loans: Ordinary cases, given national level political turmoil and/or the farmers need consultations on bank lending culture, inaccessibility of national level policymakers, projects business plan development, and proper handling of might want to consider what can be achieved through financial data at the farm level. Once farmers get used collaboration with regional government officials. It to dealing with banks on a regular basis, they become may be possible (and more efficient) to influence more confident in their ability to access credit for procedures and practices at the regional level to machinery upgrades/purchases and, more important, improve the regulatory situation faced by farmers; and in their ability to repay those loans; and · Collaboration with other IFC advisory services · Projects should be staffed appropriately for A2F work: projects: Given that IFC might have Business Enabling The background and skills needed to analyze and Environment (BEE) advisory services projects active in interact successfully with banks require a slightly the given country, it is likely that other IFC project different skill set than is needed for the direct linkages staff might already have well-established relationships work. Projects should keep in mind when making hiring with government officials who could benefit the decisions that a person should have A2F skills with an agribusiness advisory services projects' legislative appropriate background in agriculture. reform initiatives. It is important to capitalize on situations where there might be overlap between IFC 3) Regulatory reforms are needed to ensure sector- projects, both to present a united face to the wide development. government and to ensure that resources are being used as efficiently as possible. When working with farms on supply chain development issues, it becomes evident that a large portion of the 4) Impact is maximized when information is dissemi- problems farmers face results from a weak regulatory nated to the entire sector. environment. Common issues include: a lack of clarity about property certificates; the resulting inability to use land as While the bulk of a project's activities should be focused collateral; and barriers to operational efficiency (standards, on the specific supply chain of the anchor client, we need crop and input registration, laws on cooperation, etc.). IFC to leverage that experience to achieve broader sector- is uniquely positioned to influence agricultural reforms as wideimpactbyengaginginapublicawarenesscampaign. an honest broker institution that has direct experience with By promoting the learning and results achieved with the problems on the ground. anchor processor and its supply chain, an advisory services project can inform and educate farmers who are outside that specific supply chain but could stand to benefit from this information. IeG's Example: Ukraine Agribusiness Project (Closed) evaluation of agribusiness advisory services projects in eCa found that information Work was undertaken both at the farm level to help farmers legalize/ dissemination was a key mechanism used by register their rights on their land plots and property, and at the national projects to expand the breadth of impact in a level in cooperation with the Ukraine State agency on Land resources. the given region or sector. Kyiv office focused on policy, legislation, and information dissemination from a national level, while the local offices were engaged on the ground (See Example: Vinnytsya Fruit Supply Chain with farmers. In all, 33 national laws/regulations were passed as a result of Development Project on Page 4) the project's work, including: Issues to bear in mind: · LandCodeofUkraine­legallyformalizedlandownership · LawofUkraineonHouseholdPlotFarm­establishedmechanismto · Media articles, speeches, brochures, and edu- regulate household farms cational programs on TV: It is beneficial to use every opportunity to post articles in relevant ag- IEG: "Presence in both national and regional levels created conditions conducive to successful ricultural media, deliver speeches at conferenc- exchange of information, experience and knowledge between local practitioners and policymaking es, and develop project materials describing the community in the capital... The combination of IFC's unique institutional features has enabled it to results achieved at pilot farms. Farmers outside help promote private sector development by addressing enabling environment issues in tandem the anchor processor's supply chain are hungry with technical concerns...." for information, and this kind of dissemination can stimulate broader adoption of best practic- IFC SmartLeSSonS -- noVemBer 2008 3 es. Further, farmers have reported that IFC's · Demonstration fields and field days: publications in local media are very well re- Projects should create at least one garded, and farmers know that the IFC rec- demonstration field on a pilot farm and ommendations reflect best practices and allow all interested parties to visit and learn are independent of any commercial inter- aboutthenewtechniquesandbestpractices est. In addition, developing good working being implemented on that farm. It is also relationships with local and/or national TV useful to organize field days specifically for channels can be useful for reaching a large all relevant stakeholders in order to exhibit audience with educational programs on benefits and ensure that the message new agricultural techniques, managerial reaches the desired audience. practices, and pilot farm results; and Example: Vinnytsya Fruit Supply Chain Development Project (Anchor: Agrana Fruit Fillers) the project aims to streamline the com- pany's fruit supply with a group of pilot farms. However, in addition to these ac- tivities it conducts an extensive public ed- ucation campaign in the region and be- yond. a dedicated public education specialist is on board to leverage the achievements at pilot farms by highlight- ing the potential benefits to other farm- ers and stakeholders. as a result, since the beginning of the project, the number of hectares of new orchards established in the region has grown from 470 in 2005 to 740 in 2007. Pictured here is a group of farmers on their way to a seminar held at one of the project's demonstration fields. Public awareness outputs: 102 media appearances, 110 project materials developed (e.g., brochures, manuals), and over 29,000 copies of project materials disseminated. IEG: "The main benefit from a supply chain development model comes when the TA benefits are widely shared ... making the mutually beneficial contractual model a regional engine of growth." Disclaimer iFc smartlessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of iFc or its partner organizations, the executive Directors of The World Bank or the governments they represent. iFc does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the program at smartlessons@ifc.org. 4 IFC SmartLeSSonS -- noVemBer 2008