IFAD PROPOSED PPP(P) MODEL IN THE DAIRY SECTOR

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1 IFAD PROPOSED PPP(P) MODEL IN THE DAIRY SECTOR

2 IFAD FUNDED OPERATIONS IN THE DAIRY SECTOR

3 THE SMALLHOLDERS PYRAMID

4 Governments in the past have mostly seen the smallholder sector as part of a poverty alleviation mandate, mainly because this segment was not profitable in the eyes of the formal private sector which has tended to shy away. Governments have de facto been holding a development monopoly position providing all the public goods and services (research, extension, infrastructure, irrigation, natural resources management) and in some cases also the private goods (input supply, equipment, credit) but often with high inefficiencies and a focus on production rather than marketing. At the same time, smallholders have suffered from the lack of access to markets and credit because they do not represent an attractive market for the private companies or/and because they are not seen as creditworthy clients by the banking sector (lack of collateral, credit history, risky investments).

5 Many agribusinesses companies are showing the way in setting targets of agricultural products to be procured from small farmers in recognition of the fact that the middle of the pyramid represents the next frontier market with the highest potential for productivity increases and efficiency gains. However, the capacity of the private sector to move deeper down the pyramid is constrained by a market that is characterized by excessive dispersion with low costs and low profits at the individual farm level but potentially high volume if the sufficient level of aggregation and scale is achieved. Reducing the transaction costs for a private company to do business with small farmers has often to do with the availability of public or semi-public goods that can address issues such as a non-conducive policy environment, high transport costs, individual volumes being too small, supply not reliable, quality not consistent, lack of storage, low level of organizational capacity and scale, etc

6 Increasingly private companies are seeing IFAD as a partner that could facilitate the expansion of business opportunities with smallholders and want to leverage IFAD s comparative advantage and expertize in this area so as to foster their strategies It is in IFAD s role to build capacity, voice, scale, social capital, institutions of the poor, and basic infrastructure that could offer a bridge for smallholders towards i) the public sector so that they can extract better governance and service delivery and ii) the corporate private sector in making the bottom of the pyramid market viable and more attractive. Over 50% of IFAD-supported rural development projects include a pro-poor value-chain development component where the main objective is to integrate IFAD s target groups (mainly small rural producers involved in farming, fisheries or livestock) into secure markets and raise their incomes.

7 IFAD has developed an innovative mechanism and approach with the objective to sustainably increase private sector investments in the smallholder agricultural sector while also increasing the small producers access to markets and improving their livelihoods. There are two main funding tools: Brokerage and Investment Funds

8 IFAD INVESTMENTS IN BURUNDI PRELIMINARY DATA ON IFAD funded projects including DAIRY DEVELOPMENT IN BURUNDI PAIVA B PNSADR-IM PRODEFI TOTAL Estimated budget allocation for USD 8-9m USD 10-12m USD 10-12m USD30m (+?) dairy development (at least) Milk Collection Centres (CCL) >60 No. of planned imported cattle > Km of rehab rural road > dairy cattle which are going to be distributed through Chains of Solidarity will generate at least dairy cattle in year 4-5 of their projects. This means that (i) households will benefit from one cattle and (ii) additional litres of milk/day ( cattle x 5 litres x 210 days of lactation))/365 days) will be produced. On this last point, even if only ½ of the additional milk will be processed, this implies that the present processing capacity (5 000/ litres/day) in Burundi will have to be substantially upgraded. The three projects invest in supporting the three pillars of dairy production (i) animal health through training and capacitation of ACSAs; (ii) animal breeding through upgrading of AI centres at central and peripheral level with training and capacitation of AI agents; (iii) animal nutrition through support of forage production with strengthening ISUBU capacity;

9 Value Chain Analysis (VCA) Dairy Farmers Breeding Services Private Sector Processors International NGOs and funding agencies Markets/Consumers Identify and develop TORs for a Technical Service Provider to perform VCA Value Chain Analysis Report Innovation Platform (IP) International NGOs, funding agencies Government Institutions VC stakeholders Dairy Producers Organizations Facilitate IP formation Facilitate trust building and communication lines across stakeholders Address gaps identified by the VCA Analysis SWOT analysis Facilitation Office Business Development (BD) Donors (BTC.USAID.ASARECA, Value Chain World Bank Analysis IFAD) Government(MINIAGRI) VC stakeholders (VCA) Private sector investors Financial institutions Dairy Producers Organizations Identify and develop TORs for a Business Development Service Provider to develop a Business Plan Business Plan Public Private Partnership (PPP) Donors(BTC.USAID.ASA RECA, World Bank IFAD) Government(MINIAGRI) VC stakeholders Private sector investors Financial institutions Dairy Producers Organizations Facilitate PPP negotiations Identify Legal Service Provider to prepare a PPP agreement PPP Agreement IP -> the Dairy Dev. Stakeholder Forum (DDSF) FO -> DDSF secretariat DDSF with FO as Implementing Unit Dairy Producers Apex organisations Dairy agro-processing and marketing industry Input supply and service providers Business associations Government Institutions Research and educational institutions NGOs. DDSF: Agricultural advisory services facilitation, technical support and capacity building Milk Price negotiation Standards and regulations Market information Coordinate and enable policy process and change Oversee and monitor implementations AI, sanitary controls and interventions FO: Investments and interventions Preparation of annual work plans and budgets Report on progress to members of DDSF, government, ministries and donors 1 st phase: Brokering 2 nd phase: Investment