Models for development agriculture risk sharing
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MODELS FOR DEVELOPMENT AGRICULTURE: RISK SHARING. MOJI MOGARI AFGRI OPERATIONS LIMITED. CONTENT. INTRODUCTION BACKGROUND GENERAL ISSUES OF CONCERN OPPORTUNITIES POSSIBLE MODELS: AFGRI AND OTHER AGRI-BUSINESSES BETHLEHEM FARMERS TRUST APPLE FARM CONCLUSION. INTRODUCTION.

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MODELS FOR DEVELOPMENT AGRICULTURE: RISK SHARING

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Models for development agriculture risk sharing

MODELS FOR DEVELOPMENT AGRICULTURE: RISK SHARING

MOJI MOGARI

AFGRI OPERATIONS LIMITED


Content

CONTENT

  • INTRODUCTION

  • BACKGROUND

  • GENERAL ISSUES OF CONCERN

  • OPPORTUNITIES

  • POSSIBLE MODELS: AFGRI AND OTHER AGRI-BUSINESSES

  • BETHLEHEM FARMERS TRUST APPLE FARM

  • CONCLUSION


Introduction

INTRODUCTION

  • 60,000 commercial “white” farmers down to 40,000 in 15 years

  • Less than 3,000 dairy farmers down from 13,000

  • Over 450,000 subsistence / emerging farmers supplying less than 5% of the market (number largely stagnant over past 15 years)

  • 1,0 million ha of land released from production bringing total land under (un) utilised to over 3,5 million ha – primarily dry-land and most in homelands

  • Surplus maize stocks since 1992 (consumption of 9mt/years vs. production of 12.5mt 07/08, 11,2 mt 08/09)

  • Net wheat importer (producing less & less of own needs)

  • SA GDP spend on agriculture and land reform declined to less than 4% of total spend (less than 10% as agreed by AU)

  • 45% of SA population remains in rural areas

    ( Source : Andrew Makenete - ABSA Agri-Business)


Background

BACKGROUND

  • SEVERAL AGRIBUSINESSES AND COMMERCIAL BANKS TOOK PART IN THE FINANCING OF BLACK FARMERS AND COMMUNITY TRUSTS ;

  • LAND BANK PROVIDED MANY PRODUCTION LOANS , AND OTHER BEE TRANSACTIONS TO BLACK FARMERS AND COMPANIES;

  • GOVERNMENT FUNDED MANY AGRICULTURAL LAND ACQISITION TRANSACTIONS , ON PRO-ACTIVE BASIS FOR LAND REFORM

  • GOVERNMENT HAS MADE SOME PROGRESS ON LAND RESTITUTION AND THE PROCESSING OF ALL OUTSTANDING CLAIMS.


Background cont

BACKGROUND (cont)

Commercial Banks and Agribusinesses lost or have provided for Millions E.g.

AFGRI

ABSA

FNB

(Among others)

Over 500 farmers ( most of them black) have defaulted on Land Bank loans

IDC has over 80 farms in work out recoveries


General agricultural issues of concern

General Agricultural Issues of Concern

  • Constrained competitiveness and profitability

  • Lack of confidence and growth in the sector

  • Lack of investment in the sector – both from public and private sector

  • Global financial crisis (exports and credit risk)

  • Implementation of Strategic Plan for SA Agriculture, including equitable participation

  • Food security risk: globally, continentally, regionally, nationally, and last but not least, at household level.


Background cont1

BACKGROUND (cont)

Reasons for Failures ( FARMERS PERSPECTIVE)

  • No timeous access to seasonal funding

  • Vulnerability to weather and climate: Dry land

  • Limited extension support

  • No good market access

  • Lack access to equipment

  • Lack group cohesion: competing interests


Background cont2

BACKGROUND (cont)

Reasons for Failures ( AFGRI’S PERSPECTIVE)

  • No collateral

  • Vulnerability to weather and climate: Dry land

  • No timeous access to proper equipment

  • Bad agricultural practice

  • Distance from the market

  • Unscrupulous contractors and project managers

  • Weak institutional governance and complex group dynamics


Opportunities

OPPORTUNITIES

  • DEVELOPING PRODUCTION CAPACITY ON LAND REFORM FARMS

  • CREATING DEDICATED EXPORTS MARKETS TO COUNTRIES THAT HAVE NO ADDITIONAL PRODUCTION CAPACITY

  • LOOKING AT OTHER VIABLE AND HIGH VALUE PRODUCTS : E.G.HERBS AND PLANT OILS

  • LOOK ALTERNATIVE MARKETS

  • INCORPERATING EXISTING HEADS OF LIVESTOCK INTO FORMAL MARKETS

  • POULTRY CONTRACT GROWING

  • WASTE MANAGEMENT AND BY PRODUCTS

  • ALTERNATIVE MARKETS


Model objectives

MODEL OBJECTIVES

  • IDENTIFYING UNUTILIZED PREVIOUSLY PRODUCTIVE LAND

  • CREATE A HIGH TECH MULTI-PARTNERSHIP ARRANGEMENT: GOOD AGRICULTURAL PRACTICE

    ( FERTILIZER SUPPLIERS, SEED SUPPLIERS, INFRASTRUCTURE SUPPLIERS).

  • TEST THE RISK SHARING MODEL WITH THE VARIOUS INPUT SUPPLIERS.

  • TEST AND ADOPT A RISK SHARING MODEL WITH FINANCIAL INSTITUTIONS.

  • NEGOTIATE FAVOURABLE OFF TAKE ARRANGMENTS.


Business model cont

AFGRI

DEVELOPMENTAL FINANCE INSTITUTIONS/

COMMECIAL BANKS

ENTERPRISE DEVELOPMENT SPV

GOVERNANCE

AND NCR COMPLIANCE

LEASE OF LAND

WITH OVER 60% UNDER IRRIGATION

BLACK

COMMERCIAL FARMER(S)

BUSINESS MODEL (Cont.)

AGENCY WHOLESALE ARRANGEMENT

PROFIT SHARE

BLACK

COMMERCIAL FARMER(S)

BLACK

COMMERCIAL FARMER(S)


Models for development agriculture risk sharing

STRATEGY: VALUE CHAIN

LOGISTICS

PRODUCER SERVICES

FOODS

DIRECT SUPPLIERS

RETAIL

TRADING

LOGISTICS

OIL & PROTEIN

ANIMAL PROTEIN

PRIMARY INPUTS

RETAIL

FINANCIAL SERVICES

BROKING

CAPITAL


Operational model tech

OPERATIONAL MODEL (TECH)

35%

65%

PRE-INVESTMENT

PHASE

CUSTOMER SELECTION

CLIMATE SURVEY

CUSTOMER FIN DUE DILIGENCE

WEED SPECTRUM ANALYSIS

AGRONOMIC DUE DILIGENCE ( BY FERTILIZER COMPANIES)

LAND PREPARATION

SEED SUPPLIER SIGN OFF SEED BED, AND GUARUNTEES 90% GERMINATION FOR 100% PAYMENT

POST EMERGENCE

SEED SUPPLIER PAID ON GERMINATION RESULTS

MULTI PERIL CROP INSURANCE

YIELD ESTIMATION

PLANTING

PLANTING PROGRAM


Business model

BUSINESS MODEL

OUT GROWER SCHEME OBJECTIVE

  • UTILIZE INDIVIDUAL AND FAMILY OWNED LAND

  • IMPROVE PRODUCTIVITY BY SUPPLYING REQUIRED INPUTS

  • CREATION OF DEPOTS AND COLLECTION POINTS FOR THE PRODUCED PRODUCTS

  • CREATE ECONOMIES OF SCALE

  • ESTABLISH MECHANIZATION CENTRES FOR RENTED USE IN THE COMMUNITIES


Business model1

BUSINESS MODEL

OUT GROWER SCHEME : RESTRAINERS

  • PROXIMITY TO ESTABLISHED MARKETS

  • ESTABLISHED MARKETS MIGHT SATURATE QUICKLY LEADING FALLING PRICES.

  • ADDITIONAL INVESTMENT MAY BE REQUIRED FOR PRODUCT BENEFICIATION


Business model2

BUSINESS MODEL

OUT GROWER SCHEME : ENHANCERS

  • CHOICE OF GOOD VAIBLE PRODUCT

  • BBBEE PREFERENTIAL PROCUREMENT IN THE LOCAL MARKET

  • CREATION OF SEASONAL LABOUR AND OTHER REQUIRED SERVICES

  • LOCAL AUTHORITIES CAN PLAY A PART IN TERMS OF INFRASTRUCTURE AND SERVICES.


Models for development agriculture risk sharing

Business structure of the Bethlehem Farmers Trust

Funds invested

DLA R1,74m

DOA R7,75m

IDC R11,3m

DBSA R11,2m

AFGRI

Management

Technical support/ Skills transfer

Manage, technical support and training

Financing

TERM LOANS

Farmers Trust

Farmers

(94)

Product

Seasonal Financing

Four cultivers of Apples

for local and

overseas market

LANDBANK


Bft harvest tons

BFT : Harvest tons


Bft lessons learnt

BFT : LESSONS LEARNT

  • DEVELOP AN APPROPRIATE FUNDING MODEL

  • PRE-SCREEN THE BENEFIARIES PROPERLY

  • DEVELOP A COMMERCIAL OPERATIONAL MODEL AND NOT A SOCIAL ONE

  • BE REALISTICS ABOUT BUDGET PROJECTIONS AND OUTCOMES

  • MANAGE EXPECTATIONS

  • HAVE A REPRESENTATIVE MANAGEMENT STRUCTURE


Conclusion

CONCLUSION

THE DEVELOPMENT OF RURAL AGRICULTURE MAY NOT FOLLOW THE SAME PATH AS COMMERCIAL AGRICULTURE OVER THE PAST DECADES. BUT IT MIGHT REQUIRE A DIFFIRENT APPROACH


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