Sustainable Agribusiness in Africa: a getting started guide

Transcription

1 Sustainable Agribusiness in Africa: a getting started guide MAY 2013

2 Disclaimer Cover image: World Bank/Stephan Bachenheimer IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help countries achieve sustainable growth by financing investment, providing advisory services to businesses and governments, and mobilizing capital in the international financial markets. This guide was commissioned by the Sustainable Business Advisory Unit of the IFC to promote the sharing of information and practices and is distributed with the understanding that neither the authors, nor the organizations, countries they represent, nor the publisher are engaged in rendering legal or financial advice. The material in this publication is set out in good faith for general guidance, and no liability can be accepted for any possible loss or expense incurred as a result of relying on the information contained herein. This publication is not intended to be exhaustive. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of the IFC. IFC does not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. This publication is distributed subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out, or otherwise circulated on a commercial basis without IFC s prior consent. Business Briefing: Sustainable Agribusiness in Africa

3 CONTENTS Introduction... 4 Sustainable Agribusiness: what are we talking about?... 6 Key Sustainability Issues... 8 Economic... 8 Productivity, Capacity and Purchasing Practices... 8 Good Governance, Corruption and Transparency... 9 Social Food Security Food Safety Labour and Working Conditions Poverty, Health and Education Land Access Environment Climate Change Water Biodiversity Managing these issues for More Sustainable Business Standards Resource Efficiency Supply Chain and Community Investment: Engaging Smallholders...21 Measuring the Impact Conclusion Appendix 1: A Company Self-Assessment Tool Appendix 2: Standards and Multi-Stakeholder Initiatives Relevant for the Industry...32 Appendix 3: Commodity Snapshots Appendix 4: Country Snapshots End Notes Business Briefing: Sustainable Agribusiness in Africa

4 Introduction Africa is now the world s fastest-growing continent 1. On a regional level, economic growth in Africa has raised its GDP to a level similar to that of to Brazil or Russia. The World Bank estimates that by 2025, most African countries will have reached middle income status 2. While there are differences within and amongst countries in the region, social development indicators have improved, poverty has reduced, governance has improved and generally there is more stability. The rising prices of agricultural commodities have helped to fuel this. Agriculture is critical for both economic growth and poverty alleviation. Within the agriculture industry agribusiness refers to the business activities that are performed from farm to fork covering inputs, the production and transformation of agricultural products and their distribution to final consumers 3. Across the continent, agriculture and agribusiness account for nearly half of GDP 4, 15 per cent of exports and employs roughly 60 per cent of the labour force 5. While rural to urban migration is increasing, 70 per cent of the population still lives in the country side and depends on agriculture for their livelihoods 6. Women make up most of the agricultural labour force. Growth in the sector will be a key driver of long-term sustainable development as well as meeting global food demand. The World Bank estimates that by 2030 agriculture and agribusiness together could develop into a US$ 1 trillion industry in Sub-Saharan Africa 7. Global pressures on agriculture will continue to increase with demand for food expected to double by In the next 25 years, in order to meet global caloric demand it is estimated that the world will need to produce two to three times as many agricultural products on the same amount of cultivated land 9. Africa is well positioned to help meet this demand with more than half of the world s agriculturally suitable yet unused land and abundant water resources. However, despite positive prospects, there are challenges to overcome. Sub-Saharan Africa is one of the most vulnerable regions in the world to climate change. Competition for energy, water and land use will continue to increase, putting pressure on producers to grow more with fewer resources. Poverty and food insecurity remain as challenges and roughly one out of every five people in Africa lives in hunger. While water resources may be abundant, these are not evenly distributed. An estimated one in three people endures water scarcity which will be exacerbated by climate change. smallholders are not integrated into international supply chains 11. Smallholders are often faced with an absence of farmers groupings and business units, lack of extension services, inadequate market information, lack of basic infrastructure and high operating costs. There are limited incentives for the young people of today to pursue farming as a livelihood choice and rural to urban migration is on the increase. Rural areas have highly constrained agroprocessing activity and capacity and there is limited value added to farm production in the region. Agribusiness in Africa is on the rise with more and more interest from international companies and investors. Businesses in the region are faced with a multitude of different pressures and are increasingly recognising that long-term success will mean addressing and engaging on issues such as poverty, climate change, and food security. Companies that can do business in a way that provides opportunities for smallholders, generates decent work and jobs, respects human rights and protects the environment can better manage risks and seize opportunities. They can also help to build more resilient communities and create and foster sustainable livelihoods. The International Finance Corporation (IFC) is the private sector arm of the World Bank and is the largest global development institution focused exclusively on the private sector in developing countries. The Sustainable Business Advisory (SBA) unit of the IFC works with companies to adopt environmental, social, and governance practices and technologies that create a competitive edge, which can help to transform markets and improve people s lives. The SBA team in Africa is working with businesses and their stakeholders to create long term value for companies, communities and the environment. It is engaging with companies across industry sectors and helping to share and disseminate good practices for more sustainable business. Most of the food production (80 per cent) in sub-saharan Africa is by smallholder farms feeding themselves, their communities and the world 10. With the exception of cocoa and coffee, most other commodities produced by 4 Business Briefing: Sustainable Agribusiness in Africa

5 PURPOSE OF THIS BRIEFING This guide has been prepared to assist agribusinesses operating in and sourcing from Africa to understand some of the important issues and to share examples of good practice of how these issues are being managed. This guide has been prepared based on a review of literature and a scan of practices both by country and by key commodity. This was supplemented with interviews with companies, IFC staff, non-governmental organisations and consultants in the industry. A roundtable event was hosted by the IFC in London in March 2013 to engage a group of UK retailers and other stakeholders. The sections that follow outline sustainability in the context of agribusiness along with key risk areas for business. It should be noted that any viewpoints expressed in the text are those of the consultant tasked with preparing this and may not necessarily reflect those of IFC. The guide is not exhaustive but is intended to be introductory and will be more relevant to managers who are new to working in sustainability and need a basic understanding of the issues in a Sub-Saharan African context. It includes SBA s framework for working with business and examples of practices which address sustainability standards, resource efficiency and engaging smallholders. Appendix 1 provides a basic tool that companies can use to get started on building systems to manage key issues. Appendix 2 briefly summarises some of the important sustainability standards and multi-stakeholder initiatives. Appendix 3 provides an overview of key issues and multi-stakeholder initiatives and standards by commodity including: cocoa; palm; cashews; coffee; tea; horticulture; and cotton. Appendix 4 is a brief summary of country contexts for Burkina Faso, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania and Zambia which were the countries prioritised for the research. World Bank/Arne Hoel Business Briefing: Sustainable Agribusiness in Africa 5

6 Sustainable Agribusiness: what are we talking about? Sustainable development is about meeting the needs of the present without compromising the ability of future generations to meet their own needs 12. Sustainable agribusiness is about balancing financial, social and environmental issues, to ensure stable supply chains, the long-term success of the company and the sustainable livelihoods of the communities they source from and sell to. It involves community engagement, respecting human rights, protecting the environment, being transparent, and acting with integrity. Different stakeholders will have different perspectives on what sustainability means in the context of agribusiness. The companies we interviewed for this report talked about maintaining and managing the business in a way which ensures a return now and in the future. Many companies highlight their approach to being a socially responsible business and respecting and protecting the environment, whilst operating with ethics and integrity. While recognising the benefits that business can bring to local communities, some NGOs point to the fact that what companies express in terms of sustainability commitments does not always translate into benefits for communities. They also emphasise, that there are expectations from businesses even when there is not always an immediate business case 13. Africa is one of the most vulnerable regions in the world to climate change. Climate change can affect the types of seeds that will flourish and that are being used, growing seasons, water availability, and the frequency of storms and droughts. Businesses are concerned about the long-term viability of farming as a choice of livelihood, and recognise they need to understand the working conditions in their supply chains, and ensure that their business operations as well as ways of doing business enable employees to have fair wages and decent and safe working conditions. For any company working within this sector, land use and acquisition is a critical issue. Sustainable business practices can help: Secure supply chains Build reputation Strengthen client and customer relationships Support employee recruitment and retention Build relationships with investors and the financial community Build relationships with government and the local community Everything we make and sell starts on the farm. Sustainable agribusiness for us is about long term secure supply chains. (Quote from company interview) Ultimately it is about enlightened self-interest and not something separate from the core business model. (Quote from company interview) What is a Value Chain? Whereas supply chains refer only to backward linkages (i.e. with producers), value chains refer to both backward and forward linkages (i.e. with producers through to consumers). Value chain is a widely cited concept to describe the full range of activities which are required to bring a product or service from conception, through the intermediary of production, delivery to consumers, and disposal after use (Kaplinsky 2000). Value should be added at each step along the chain from the farmer who grows the product, to the layers where any processing or packaging take place to distribution to the final basket it sits in where the consumer purchases it. Creating Shared Value Companies cannot succeed in communities that do not. Shared value is about ensuring business success while also ensuring that communities prosper as well. Creating Shared Value (CSV) is a term which is attributed to an article by Michael E Porter in the Harvard Business Review. 6 Business Briefing: Sustainable Agribusiness in Africa

7 Agribusinesses have the potential to help improve people s lives and give them opportunities to escape poverty. There are also opportunities for companies to develop business models, which protect the environment and natural resources to ensure production for the present and for future generations, while ensuring benefits for farmers and their communities. Agricultural value chains are complex and involve growers, input providers, government agencies, processors, packagers, and various agents who need to work together. Sustainable business models need to take an integrated approach. Integrating the management of environmental, social and governance related issues are important for managing these complex risks and opportunities. The IFC Performance Standards i can help companies to manage these issues. Companies can also look to guiding standards such as the ISO Guidelines for Social Responsibility, and numerous other standards to help them identify the steps that they can take (see Appendix 2). For companies getting started on a journey to a more sustainable business, there are some key steps that can be taken to support continuous improvement. Understand the material issues: Companies needs to understand the important (i.e. material) issues, which can impact their business. While there will be crossover within industry and between sectors, not all issues have the same relevance for every business. Briefings such as this one can provide business with a first step and general overview. Engage with stakeholders: To understand their material issues, companies need to engage with their stakeholders. There are various tools and resources to support companies to do this. The IFC s Stakeholder Engagement: A Good Practice Handbook ii is a useful business tool. Demonstrate leadership and accountability: Managing complex social and environmental issues starts from the top. Businesses can review how sustainability is reflected in their company values and principles and how they demonstrate leadership. For example, is there a Board Member appointed to oversee responsible business practices? Define policies, standards and objectives: Businesses need to ensure they have policies and codes of conduct, which define their company s commitments and strategies. Based on these, objectives and targets can be established. Ensure resources and capacity in place: It is important to ensure that sustainability related initiatives are properly resourced and that there is appropriate capacity as to fulfil commitments. Measure, monitor, review and evaluate: Recognising the old paradigm that you cannot manage what you cannot measure, businesses can ensure that systems are in place to measure and monitor impacts and outcomes and integrate findings for continuous improvement. Communicate and report: Being transparent about the business and its social and environmental impacts and ensuring strategies to address these are part of being a responsible company. By understanding the concerns and expectations of stakeholders, businesses can ensure that appropriate communication channels are in place. Numerous tools and guidelines exist for sustainability reporting at a company level. Context is critical: Effectively managing and implementing sustainable business strategies requires that these fit within the local context and are appropriate to the size and scale of the business. Appendix 4 provides a brief overview of some of the issues and challenges in different country contexts in the region. i IFC Performance Standards accessible online at: IFC+Sustainability/Sustainability+Framework/Sustainability+Framework /Performance+Standards+and+Guidance+Notes+2012/ ii IFC Stakeholder Engagement: A Good Practice Handbook available online at: external_corporate_site/ifc+sustainability/publications/publications_handbook_stakeholderengagement wci

8 Key Sustainability Issues While the sustainability issues are interconnected, the following section has grouped these issues within the broad headings, which the IFC uses: economic, social and environment. Through their engagement with stakeholders, agribusinesses can identify and build understanding of the important issues, analyse their potential impact on the company, and prioritise. Figure 1 below shows a materiality matrix of the type that is often used and adapted by business for mapping risks and opportunities. The prioritisation for different agribusiness will depend on their own operations and stakeholder concerns. The accompanying boxes show key issues that were identified through the research and interviews carried out for this briefing. It is by no means exhaustive. The following sections provide a brief overview of some of these key issues. Figure 1: Example materiality matrix for prioritising issues Increasing concern to stakeholders Increasing current or potential impact on company Source: CDC Toolkit for Fund Managers 14 Essential to prioritise Important to prioritise Issues for attention Issues not considered essential Economic & Governance Productivity Capacity Purchasing practices Risk of corruption Poor governance Lack of transparency Social Child labour and forced labour Farm and factory health and safety Minimum and fair wages Lack of contracts Freedom of association Migrant workers Land Cultural heritage Indigenous peoples Environment Climate change and energy Biodiversity loss and impacts Soil erosion and loss of productive capacity; Water contamination; reductions in local water supply from overuse; Waste management and hazardous effluents Impacts of genetically modified crops Pesticide and herbicide use ECONOMIC PRODUCTIVITY, CAPACITY AND PURCHASING PRACTICES Improvements in agricultural productivity are needed for growth and development, and to address the global demand for food. It is estimated that for each 10 per cent increase in small-scale agricultural productivity in Sub-Saharan Africa, almost 7 million people are moved above the dollar-a-day poverty line 15. While recent years have seen sustained growth in agricultural production in Sub-Saharan Africa, in comparison to other regions, productivity levels in Sub-Saharan Africa for many food products are extremely low 16. The root causes of low productivity are multifaceted and include: weather conditions; access to knowledge and resources; access to financing; and access to markets, technology, infrastructure and agricultural inputs. Throughout the region, agricultural research and development (R&D) investments have stagnated due to political, social, and economic unrest as well as institutional changes (such as mergers, subdivisions, relocation, reshuffling) Business Briefing: Sustainable Agribusiness in Africa

9 80 per cent of food grown in Africa is grown by smallholders. For example, in Tanzania, smallholders only cultivate average farm sizes of between 0.9 hectares and 3.0 hectares and cultivation is mostly by hand hoe 18. Most smallholder farmers, and particularly poor rural farmers, do not participate in formal value chains and are often limited to producing for informal markets. This is a challenge for businesses looking to engage smallholders and to find ways that add value to farm production and create jobs. Analysts have pointed to the fact that agribusiness in Africa does not add the same value that it does in other regions, which is a missed opportunity. Whereas in high-income countries, agribusiness adds about US$180 of value by processing one tonne of agricultural products, African countries generate only US$ While 98 per cent of agricultural production in high-income countries undergoes industrial processing, in African countries less than 30 per cent is processed. Rural areas in African countries have limited agro-processing activity and capacity. As such, Sub- Saharan Africa countries in particular experience large postharvest losses, especially for perishable commodities such as fruit and vegetables. It is estimated that post-harvest losses average per cent of total possible production for fruits and vegetables and per cent for grains 20. Research on cocoa production in Sub-Saharan Africa found that in Ghana and Cote d Ivoire, farmers harvest an average of 300kg-400kg of cocoa beans per hectare per year up to 50 per cent lower than their potential productivity. Reasons identified included outdated farming methods, the lack of access to technology and finance, and lack of incentives to improve depleted soil fertility or replace ageing trees, many of which are more than 25 years old and past their productivity 21. Contributing to building an enabling environment where there are economies of scale can help address some of these challenges. For instance, the Ethiopian Coffee Exchange has been cited as a positive intervention in terms of the role that government can play and has helped to increase incomes for coffee growers there by 60 per cent 22. Large consumer goods companies and retailers purchasing from Africa also note that there are key challenges in finding producers who have the capacity to be a part of their supply chain. Organised farmers groups and aggregation can help to support capacity building and productivity increases. However, participation in organised farmer groups ranges from an estimated 30 per cent in Côte d Ivoire to much lower levels in Nigeria and Ghana 23. This can pose a challenge for buyers who do not have organised farmers groups to work with. A lot of the agribusiness value chain is based on shortterm investments. This is a challenge for farmers to be able to get the knowledge and resources needed to take on risk to diversify and produce food both for subsistence needs as well as for the market. In Tanzania, only 3 per cent of agricultural households have access to credit 24. Even medium- and large-scale commercial farmers and agricultural investors face major financing constraints, and therefore refrain from larger-scale investments in the agricultural sector. When companies and other stakeholders were interviewed for this briefing the critical issue that came up time and again was in relation to purchasing practices vs. sustainable development commitments. One agricultural company noted how retailers have a great deal of leverage but that there is a dichotomy between what they say and their buying practices. Furthermore, uncompetitive behaviour by crop buyers especially for key cash crops, can force farmers to sell their produce at low prices, which will lead to continued and chronic rural poverty. GOOD GOVERNANCE,CORRUPTION AND TRANSPARENCY Doing business in an ethical and transparent way is critical for sustainable business. On Transparency International s Corruption Perception Index for Sub-Saharan Africa, 90 per cent of the countries scored below 50 (with a score of 100 indicating high level of corruption and 0 being very clean). Botswana was perceived to be the least corrupt and Somalia the most corrupt. The worst perceived region was Eastern Europe and Central Asia 25. If corruption involves politicians it can deplete a country s national wealth, particularly if agricultural projects are granted based on exchange for personal gains. Corruption undermines economic, social, and environmental goals, and keeps people and communities poorer. For agribusiness, corruption can impact the safeguards of standards, whereby those who are entrusted with ensuring workplace or product safety could be paid money to turn a blind eye. Access to land titles may require payments of bribes, putting companies and their employees at risk. Transparency is needed to facilitate land acquisition, valuation and compensation issues. Corruption can undermine trust in institutions, and contribute to a lack of or non-enforcement of environmental laws and regulations, leading to unsustainable exploitation of natural resources. Companies and communities can benefit from ensuring transparency. Growing numbers of companies now want to ensure the traceability of their supply chains to manage the associated business risks. Other stakeholders have increasing expectations that companies sourcing from Africa will disclose information about where their products and raw materials come from. Business Briefing: Sustainable Agribusiness in Africa 9

10 SOCIAL FOOD SECURITY Food is a human right and included in the 1948 Universal Declaration of Human Rights. Malnutrition stunts growth and development, affects productivity and helps to sustain poverty. Food security is an important issue for businesses, who have a responsibility to respect human rights, while ensuring the sustainability of their supply chains and whose companies cannot thrive in communities that fail. Although there have been improvements on many socio-economic development indicators, Sub-Saharan Africa has the highest prevalence of hunger in the world 26. At the same time, with changing diets, urbanisation, and an increasingly sedentary life for the emerging middle classes, the region is also experiencing an increase in obesity 27. Despite the positive economic growth, malnutrition continues to plague communities across the continent. The malnutrition rate for children in Africa under the age of 5 was 41 per cent in 2010, which was only a 2 per cent decrease from 1990 levels. In contrast, Asia went from 48.6 to 27.6 in the same period 28. In 2011, a famine in East Africa left more than 2.5 million people reliant on emergency assistance and was estimated to have killed up to 100,000 people. In 2012, West Africa was affected by severe and acute food shortages. In Mozambique, farmers have reported that households routinely experience a hungry season where there is not enough food to feed the household and that this is considered a normal part of life 29. Riots have broken out in countries such as Mozambique and Algeria in recent years due to the spike in prices of basic commodities. Although Africa has the means to be self-sufficient, the region is still a net importer of food. It is estimated that 95 per cent of the basic staples in Africa are not regionally produced, but imported 30. Agriculture exports are a major source of income for countries and communities in the region, while greater dependence on food imports leads to exposure to price and supply risk 31. The food retail sector on the continent has changed over recent years with the rise in supermarkets and a corresponding decline in more traditional shops and markets in some areas. Arguments in favour of Genetically Modified (GM) crops are that they could provide higher yields and help to meet the growing demand for food. However, other advocates and analysts have argued that GM crop developments to date have largely benefited northern countries and markets, not small scale farmers in the developing world 32. The knock-on effects of GM crops are not yet fully understood both in terms of their human and environmental impacts. While economic growth tends to result in improvements in nutrition this is not always the case. Increases in agricultural output do not always lead to better outcomes in the communities and for local nutrition. For example, in Malawi where farmers managed to dramatically increase their grain yields, moving the country from a grain importer to exporter, there was not a corresponding improvement in the nutritional status of many Malawians 33. FOOD SAFETY Aside from the availability and affordability of food, another important issue for agribusiness is food safety. Food poisoning can result in impacts for people ranging from mild discomfort to death. Well publicised outbreaks of microbial and chemical food poisoning cases are on the rise globally and in Africa. Globally, one of the most high profile cases in recent years was the 2008 milk scandal in China, where six babies died and 300,000 fell ill, when melamine, which is an industrial chemical, got into the milk supply 34. In Nigeria, in 2010, many people in Bekwarra Local Government of Cross River State suffered from food poisoning due to indigestion of beans (made into moi moi ). As a result about 122 people were hospitalised, while deaths of two children were recorded. The moi-moi and the beans it was made from were said to have contained a large dose of highly toxic pesticides 35. Agricultural supply chains are complex and have become more so over recent years. Stakeholders interviewed for this briefing emphasised the importance of traceability. Tracing the value chain and knowing where your products come from can help companies ensure that their products are safe and that social and environmental issues are managed well. However, other stakeholders pointed out that companies also need to bear in mind the cost implications of traceability and whether their need and their customers need for traceability could be having an adverse impact on the producers in their supply chains and in particular for small holder farmers. 10 Business Briefing: Sustainable Agribusiness in Africa

11 LABOUR AND WORKING CONDITIONS Agriculture in Africa employs roughly 60 per cent of the labour force. Companies are faced with managing risks and ensuring that workers rights are protected as well as balancing labour shortages. Agricultural work is the second most dangerous work after mining in terms of fatal accident rates. According to the International Labour Organisation, out of some 335,000 fatal workplace accidents worldwide, about 170,000 occur among agricultural workers. However, the injuries are often under reported 36. Working on plantations is labour intensive, and wages along with housing and social conditions may be a problem. There are often issues regarding lack of or poor facilities such as schools, pharmacies, health clinics, etc. 37 Labourers often cross borders in search of employment opportunities and reports have noted that in some supply chains there are risks of trafficking and forced labour 38. The International Labour Organisation (ILO) is the international organization responsible for drawing up and overseeing international labour standards. The ILO Declaration on Fundamental Principles and Rights at Work includes eight Conventions in four areas of Freedom of Association; Elimination of forced labour; Abolition of child labour; Elimination of discrimination The ILO Code of practice on safety and health in agriculture contains guidance and tools for agribusiness. Exposure to agrichemicals is a risk for agricultural workers. Chemicals (fertilizers and pesticides) have had negative effects on human health and on the environment 39. Chemicals are also often misused for the quick and artificial ripening of fruits and vegetables, which has can have negative impacts on the health of people. Additionally, agricultural workers are exposed to dusts and other biological elements which can be harmful to their health. Most agriculture is carried out by smallholdings. This can mean that home and work are interconnected and there is a reliance on family members and informal labour relations. Children are usually depended upon to help with the land. This can bring risks to companies in terms of having young workers in their supply chains. Child labour is a real risk and a particularly important issue given the hazardous work involved. Roughly 30 percent of children between the ages of 10 and 14 are employed in agricultural work in Africa and the majority are unpaid family workers 40. However, throughout the world agribusiness often consists of small businesses and family businesses. This can present a tricky issue for companies given that pulling children out of the supply chain or refusing to work with family businesses could potentially be detrimental to those children. Gender inequalities are an important sustainability issue for business. Women grow 80 per cent of staple foods in Sub- Saharan Africa 41, yet are usually in the lower paid jobs in the supply chains. In commodities like cocoa, tea, and coffee, women are often producers while men sell the crops to traders and control decisions and the money. Boys are still the recipients of most educational opportunities 42. Women workers earn less and often face barriers to credit and markets. Companies will often look to source from established producer groups, yet women are typically underrepresented in both membership and governance of these groups. Companies have recognised that they need to have policies and codes of conduct in place, which meet both national laws and international standards and include topics such as fair employment practices; health and safety; prohibition of forced and child labour; non-discrimination on the basis of race, gender, sexuality, national origin, or religious beliefs; and prohibition of harassment and abuse iii. In addition, workplace-specific risks and hazards need to be identified and action plans put in place to eliminate these. Ensuring workers have a voice and communication channel with management (trade unions or other forms of representation) is crucial, as is a grievance mechanism. If companies are dealing with any form of child labour, they should ensure that decisions are taken with the best interest of the child in mind. Furthermore, research has found that many international food companies could improve crop productivity and quality, grow the smallholder supply base and improve access to high value markets when they increase women s participation 43. iii See IFC Performance Standard 2: Labour and Working Conditions Business Briefing: Sustainable Agribusiness in Africa 11

12 POVERTY, HEALTH AND EDUCATION Growth in the agricultural sector has been the key factor in reducing rural poverty providing jobs and income. While poverty, health and education indicators across the region have increased, challenges still remain. As noted in the preceding section, a large proportion of children between the ages of 10 and 14 are agricultural workers. This is driven by poverty and also impacts and is impacted by educational opportunities available for children and young people. The ILO has estimated that in Kenya, during the peak coffee picking season, up to 30 percent of the pickers are under the age of High levels of illiteracy still exist across much of the region, particularly in rural areas and studies have found correlations between literacy and improvement in farm productivity. In addition, limited ability to access market information means that farmers may not have a clear idea of fair prices for products and cash flow challenges mean that many may need to sell their yields quickly and for lower than fair prices 45. Similarly rural poverty has been exacerbated by low investments in health and education. HIV/ AIDS and malaria have taken huge tolls on the potential workforce and combined with rural to urban migration, there are growing labour shortages for many farms. Poverty disproportionately affects girls and women. Girls are more likely to be impacted by any increases in infant mortality and face inequalities in their opportunities for schooling. Women are more likely than men to be doing unpaid work as family labourers or in the informal sector and overall have unequal access to economic opportunities. While women make up to half of the agricultural labour force in Sub-Saharan Africa, they have lower access to inputs such as extension services and fertilizer which can impact on yields 46. Through their core business models and additional community investments, companies can work to build shared value, so that the business benefits and communities thrive. Companies can work to put in place conditions, which enable longer term relationships with smallholders, providing a decent and fair income, and support investments, such as, agricultural services, credit and inputs. Interventions need to factor in gender considerations. With better prices, farmers can get out of extreme poverty, local industries can be promoted, unemployment can be reduced and gradually the country s standard of living can be raised. LAND ACCESS Since the global food price increases in 2008, there has been a growing demand for land for agricultural use and a growing increase in land acquisitions particularly in developing countries 47 and particularly in Africa. NGO campaigns have pointed to the challenges for local communities whose rights are often infringed through the land acquisitions 48. For smallholders in Africa land is often passed from generation to generation with ill-defined tenure rights, which can leave farmers and in particular women - at risk. Issues around land use and access to land vary between countries depending on the policy environment. However, for agribusiness, land acquisition and, land use can be significant risks depending on how it is managed iv. Companies around the world have found themselves faced with community protests and global campaigns if they have not ensured that they are respecting existing land rights. Many companies and other stakeholders such as governments, financers and communities recognise that obtaining Free Prior and Informed Consent (FPIC) can be an essential tool in managing community relations and protecting local people s rights. FPIC refers to informed, non-coercive negotiations between companies and local communities prior to development of business activities. It recognizes indigenous peoples inherent and prior rights to their lands and resources. It involves ensuring information about and consultation on any proposed initiative and its likely impacts are detailed in a way which communities will understand. It also involves meaningful participation of indigenous peoples and representative institutions. iv See IFC Performance Standard 5: Land Acquisition and Involuntary Resettlement 12 Business Briefing: Sustainable Agribusiness in Africa

13 Companies have found FPIC particularly useful where customary and indigenous rights are not fully reflected in national legal frameworks. Some standards such as the Roundtable on Sustainable Palm Oil (RSPO) have also included the FPIC topic in its framework. Although the FPIC framework should ideally be used to prevent conflicts through prior consent, experience shows that the framework can also be helpful in resolving existing conflicts and enhancing community trust 49. ENVIRONMENT CLIMATE CHANGE Sub-Saharan Africa is one of the most vulnerable regions in the world to climate change. While many countries are already prone to frequent droughts and/or floods and these events are cyclical, their increasing frequency and intensity are thought to be linked to climate change. The impact of these shocks on already vulnerable populations is often severe, affecting both short-term food securities as crops fail or are destroyed, and long-term food security as households lose or are forced to draw down on their few assets. The World Bank s 2012 Report Turn Down the Heat warned that temperatures could rise by more than 3 degrees above pre-industrial climate this century without further commitments and action, and that the most alarming impact may be on food production, with Africa being particularly affected 50. Climate change is a critical business issue. Agriculture itself can significantly impact climate change through land use change and cutting down forests or removing peat-lands which help to absorb carbon. Agribusiness will be impacted by climate change which can impact on the quantity and quality of crops, pasture, forests and livestock. It will bring changes in land, soil and water resources. There will be new and different challenges for weed and pest control. Resulting socio-economic impacts will include changes in yields and production; price fluctuation; increased food insecurity. Examples of climate impacts include: Research into maize has found that climate change affects the crop production and results in lower yields and harvests. For Kenyan tea farmers, changing weather patterns have stressed tea crops and hampered productivity which has depressed income and delayed cultivation of important staple crops. Crops such as Arabica coffee grown from limited genetic stock may lack the flexibility to be able to cope with climate change. between 4.5% (conservative estimates) and 9.8% (worst-case scenario) 51. Agribusiness needs to consider its operations in a resource constrained world, how it manages its own greenhouse gas emissions throughout the value chain and including land use change and how it is adapting to the risks caused by climate change. WATER Water is essential for agriculture and for all life on the planet. Globally, the agriculture sector is the largest user of water (more than twice that of all other sectors combined), and the greatest source of water pollution 52. It is estimated that agribusiness accounts for 70 per cent of freshwater consumption globally 53. Access to water is recognized as a human right. It is forecasted globally that there will be a 40 per cent gap between water demand and supply by 2030 under business as usual conditions. While Africa is endowed with an abundance of fresh water supplies, it is estimated that one in three people endure water scarcity and climate change will make things worse 54. The use of chemicals also has an adverse effects on the environment resulting in the pollution of surface and ground waters 55. Although most farmers cannot afford to use chemical pesticides, those who use them may apply incorrect doses and use improper procedures 56. While integrated pest management techniques can provide more sustainable options, pesticides continue to be attractive to most farmers and governments because they are simple to use. Stress on water sources are compounded by low levels of irrigation in the region. Only 4 per cent of arable land in the Sub-Saharan Africa region is irrigated compared to 35 per cent in Asia and 15 per cent in Latin America. For some agribusiness, poor water storage and harvesting is a key risk. Processing of agricultural commodities, which is not properly managed can wreak havoc on local water supplies and contaminate drinking water. Given the stress on water resources and growing global scarcity, successful agribusinesses in the future will need to ensure they have a water resources management system in place with procedures to conserve, measure and manage their water use, and manage the risks that water shortage can pose to their supply chain vi. Many companies are starting to develop such systems. Companies can help to make a positive contribution to sustainable development by recognizing that water is a human right and respecting this right as well, as by carefully managing their water footprint / use of water and helping to protect local watersheds. In Mozambique, it is estimated that climate change, combined with the effects of more frequent flooding on rural roads, could result in agricultural GDP losses v See IFC Performance Standard 3: Resource Efficiency and Pollution Prevention vi See IFC Performance Standard 3: Resource Efficiency and Pollution Prevention Business Briefing: Sustainable Agribusiness in Africa 13

14 BIODIVERSITY AND ECOSYSTEM SERVICES Biodiversity is the variety of life in our world or in a particular habitat or community. Ecosystem services are the benefits that people, including businesses derive from the ecosystems. Agriculture impacts and depends on biodiversity and the ecosystems it supports. As land is converted for agricultural purposes, it can reduce biodiversity. For example, palm and tea plantations can destroy biodiversity as a result of forest degradation and fragmentation from conversion to monoculture 57. Tea must be planted in steep, remote areas on terrain that often hosts high concentrations of vulnerable animals and plants. Converting such landscapes for tea production endangers species and, due to the slope of the land, can cause soil erosion. Forests and woodlands face pressures from a growing human population including encroachment and conversion for agricultural expansion, illegal logging and poaching of wild animals, overgrazing leading to loss of woody vegetation, and the impacts of conflicts 58. Only about 6 per cent of sub-saharan Africa, or 142 million ha, falls under protected areas 59. Agricultural production in sub-saharan African ecosystems is greatly affected by pests such as insects, nematodes, fungi, rodents, birds, weeds, viruses and bacteria 60. For smallholders, lack of access to fertilizer can be a key contributor to low yields and simple agricultural practices and correct application of fertiliser can significantly increase yields. However, incorrect use of fertiliser and chemicals can also create impacts on the environment and human health 61. Chemical use can not only impact drinking water, but can also affect soil quality and kill species. There are arguments both for and against the expansion of GM crops. Modifications of crops could enable their survival in unfavourable conditions and increase their ability to withstand climate change. However, critics are also concerned about an increased dependency on the companies who control and supply the seeds and the knock on impacts on biodiversity. Biodiversity loss is a significant risk for business and a critical sustainable development issue. For agricultural crops and innovation in seed production, biodiversity is fundamental. Some companies are increasingly recognising the importance of protecting biodiversity and the corresponding ecosystem services. Negative impacts should first be avoid but if avoidance is not possible then companies can work to ensure impacts are minimised as well as restoring impacted areas after usage. Some companies have biodiversity offset strategies to compensate for impacts that cannot be avoided, working to achieve no net loss of biodiversity or, alternatively a net gain vii. 14 vii See IFC Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources

15 Managing these issues for more sustainable business There are different ways of characterising and categorising the approaches that companies take to manage these complex issues. For IFC, interventions cut across 3 areas: standards; resource efficiency and supply chain / community investment. Table 1 maps activities and strategies in relation to these focus areas and the sections below provide further details and information. The examples that were chosen were those which were highlighted and elevated through the research and are based on publicly available information and do not necessarily imply any partnerships with IFC. IFC Sustainable Business Advisory Focus Area: STANDARDS Standards and certifications can help companies put management systems in place and to demonstrate to others how they are managing social, environmental and governance issues in their business. This in turn can build investor and consumer confidence, and increase access to markets. For agribusiness exporting to the European Union (and other markets), traceability of products with appropriate packaging and labelling are essential. IFC Performance Standards are viewed by banks and businesses alike as the gold standard for managing sustainability risks in their operations. They are directed towards clients, providing guidance on how to identify risks and impacts, and are designed to help avoid, mitigate, and manage risks and impacts as a way of doing business in a sustainable way. They include guidance on stakeholder engagement and the disclosure obligations of the client in relation to project-level activities. Together, the eight Performance Standards establish standards that the client is to meet throughout the life of an investment by IFC. The IFC also produces industry guidelines for the Environment, Health and Safety. Many businesses including retailers, processors and traders have made commitments to the environment and to the working conditions and human rights of workers in their value chains. This will often be expressed through their policies, principles and codes of conduct. Businesses use standards and codes (both internal and third party) to promote responsible practices in their supply chains and support traceability and food safety. Farmers and their associations can implement standards, which open up and increase access to different buyers and markets. There are numerous multi-stakeholder standards, which are important for agribusiness including Fairtrade, UTZ Certified and the Rainforest Alliance; and standards which are specific to commodities such as the RSPO. While timber was not included in the scan or the research for this project, the Forest Stewardship Council should also be emphasised as a key and important standard. Other standards such as ISO help companies with environmental management systems. Appendix 2 outlines some of the ones relevant for companies in this sector. Companies can invest in initiatives, which help suppliers and communities: Identify relevant Environmental, Social and Trade (EST) standards Adopt these standards Identify market opportunities based on the application of these standards Reduce costs of the adoption standards Examples of Standards for Agribusiness Fairtrade aims to improve the lives of farmers in the supply chains and give producers a better (fairer) deal. For a product to display the FAIRTRADE Mark it must meet international Fairtrade standards which are set by the international certification body the Fairtrade Labelling Organisations International (FLO). Rainforest Alliance (RA) Certified seal is awarded to farms that have met the environmental, social and economic standards of the Sustainable Agriculture Network (SAN), a coalition of local conservation organizations that first set the standard for sustainable farming in rainforest areas in the early 1990s. The SAN standards cover ecosystem conservation, worker rights and safety, wildlife protection, water and soil conservation, agrochemical reduction and education for farm children. UTZ CERTIFIED started as a certification standard for mainstream coffee and it is now expanding to other commodities such as cocoa, tea and palm oil. The program gives independent assurance of sustainable production and sourcing and offers online real-time traceability of agricultural products back to their origin. The Roundtable on Sustainable Palm Oil (RSPO) was established in 2004 with the goal of promoting the growth and use of sustainable oil palm products through credible global standards and engagement of stakeholders. RSPO has developed the most credible mainstream standard available for sustainable palm oil production, covering key environmental and social criteria. Business Briefing: Sustainable Agribusiness in Africa 15