Influencing and Responding to Private Sector

Motivations for Pro-Poor Impact in

Bangladesh and East Africa

Private Sector Engagement for Inclusive Value Chain Development

Kevin McKague Schulich School of Business, York University, Canada

SEEP Annual ConferenceNovember 1, 2011

Overview

• Framework for Understanding Intangibles– How they relate to a value chain theory of change

• Frameworks for Private Sector Engagement– Value chain activities most relevant for private sector engagement– Distinctions between diverse private sector organizations – Process of understanding, influencing and responding to private sector

motivations

About the Research

• Strengthening the Dairy Value Chain Project in Bangladesh– Focus of my PhD dissertation

– Schulich School of Business in Toronto, Canada

– Explaining the mechanisms by which an NGO can reduce poverty through a market-based approach

– Qualitative Case Study Methodology • October 2009 to present

• Interviews, observation, archival data

• Additional quantitative data gathering being developed

– Private Sector Engagement and Inclusive Value Chain Development published in 2011

Bangladesh Dairy Value Chain

Challenges

• Bangladeshi Dairy Sector– Unwillingness of private sector to reach the bottom of the pyramid

– Government ineffective at improving practices and unreliable data on the

dairy sector (Jabbar, 2010)

– Smallholder farmers account for majority of national production, but rely

on subsistence methods

– 30% of national milk demand met by imported powdered milk

– Limited access to productivity enhancing inputs and markets

– Collectors and collection systems reduce trust and milk quality

– Gender norms

Theory of Change and Role of Intangibles

Primary Focus of Private Sector Engagement

Process of Private Sector Engagement

Summary

• Framework for Understanding Intangibles– How they relate to a value chain theory of change

• Frameworks for Private Sector Engagement– Diversity of ‘private sector’ organizations– Process of understanding interests and creating sustainable models

Thank you

Kevin McKague kmckague@schulich.yorku.ca

Schulich School of Business, York University, Canada

Private Sector Motivations for Pro-Poor Impact in Bangladesh and East Africa

Muhammad SiddiqueeProject Director, Strengthening the Dairy Value Chain

CARE BangladeshSEEP Annual Conference, November 1, 2011

Strengthening the Dairy Value Chain

• Bill and Melinda Gates Foundation funded dairy value chain project (2007-2012) to double dairy related incomes of 35,000 small farmers in northwest Bangladesh

• Working with the private sector towards sustainable solutions

Target Dairying Households

• Hamida Begum is married, has three children, works as a day laborer and tends her family’s two cows

• Average Household:

– Very poor

– Own 0.75 acres of land

– $25 monthly income

– 1-3 cows

• 79% of SDVC farmers are women

SDVC Project Region

Bangladesh Dairy Value Chain

Target and impact group

Current (% of women)

Total milk producing (participating) Household

36,397 (83%)

Total milk producer group 1182

Farmer Leader 3425 (71%)

Milk Collector 308 (9%)

Livestock Health Worker (LHW) 201 (23%)

Information Service Center (ISC) 48

Community Agri-Shop (CAS) 102

Avg. production increase (milking stage) 75%

HHs' milk consumption increase 40%

# of groups engaged in savings 538

Theory of Value Chain Enhancement

Private Sector Engagement Framework

Private Sector Engagement

BRAC•BRAC Dairy•AI•Transaction Transparency

CDVF•Intermediary organization•Aim to provide community veterinary service•Links to markets

Microfranchised Village Input Shops•One-stop service centers

– Feed– AI– Animal health services– Medicines– Information

Challenges•Unwillingness of private sector to reach the bottom of the pyramid•Limited access to inputs and markets•Lack of transparency and trust

Value Chain Transaction Transparency

Challenges– Lack of transparency

across the dairy sector in formal sector purchasing practices

– Collectors and collection practices

– Disincentive for quality milk production

BRAC Dairy and VC Transparency

Response and Results– Worked with BRAC to understand

their constraints– Risk for BRAC to acknowledge

problem (a destructive innovation)– Trust building and patience– Piloted fat testing meters, expanding– Potential to transform purchasing

practices across the sector, benefiting smallholders, quality

Micro-franchised Diary Input Shops

Challenges– Lack of access to inputs

• concentrate feed• animal health services• medicines• artificial insemination

– Gap in the value chainBusiness relationship

versus partnership

Micro-franchised Dairy Input Shops

Response and Results– Worked to ensure input shop

owners are trusted– Community members (farmer

leaders, paravets)– Provided business and

technical training– Moving toward a micro-

franchise model– Farmers willing to travel

further to get inputs from someone they trust

Micro-franchised Dairy Input Shops

Gateway Agency

• Opportunity– Community Dairy Veterinary Foundation– Successful gateway agency brokering between

informal and formal sector

– Currently operating with donor funding

– Potential to scale through a financially self-funding model

Gateway Agency

• Response– Built relationship with CDVF founder– Replicated model amongst poorest farmers– Co-funded a business plan and strategic plan to

transition from donor organization to financially self-reliant social enterprise

• Challenge– Intangibles can doom a good

opportunity– Ultimately walked away

Summary

• Role of intangibles in value chain relationships– Transparency– Trust– Risk and Uncertainty – Understanding private sector interests

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East Africa Dairy Development (EADD):A Heifer International Consortium

SEEP Annual Conference PresentationNovember 1, 2011

Moses Nyabila, EADD (Nairobi)

Project Generously Supported by the Bill & Melinda Gates Foundation

About EADD

Scope Duration: 2008-2012 Budget: $ 42.85 Million (BMGF) Beneficiaries – 179,000 dairy farmers on less than $2 per day Kenya, Uganda, Rwanda

Partners Heifer International (Lead) Governments of Kenya, Rwanda and Uganda Bill & Melinda Gates Foundation TechnoServe International Livestock Research Institute African Breeders Services - TCM World AgroForestry

Project Management 170+ All Local Hires)

110,000

45,000

24,000

Target beneficiaries by country

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Rwanda

Why East Africa?

Over 80% of the region’s population (180 million people) are smallholder farmers.

Huge comparative advantages in the livestock and dairy subsector;

Urbanization and rapid economic growth are creating demand for high quality milk and milk products.

EADD partners have many years’ experience implementing small-scale smallholder dairy projects in the region with great success

A unique opportunity to overcome rural poverty and malnutrition

EADD Vision and Objectives

VisionTransform the lives of 179,000 smallholder farming families (approximately 1 million people) by doubling their household dairy income in 10 years.

Objectives-Harness Information for Decisions and Innovation

-Expand Access to Markets

-Increase Productivity and Efficiencies of Scale

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Progress to date

• Over 160,000 of 179,000 mobilized

• 71 cooperative/farmer enterprises supported

• Farmer incomes grow by 150%

• Over US$ 5 million in farmer investment/savings mobilized

• Expanded platform for PPP

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Achievement 1Significant Rises in Farmer Income

Box 6: Change in milk productivity per cow

Ref: EADD Mid-term Evaluation Report

______ Kenya ______ Uganda ______ Rwanda

Country June'08 Dec-10 Change

Kenya 12

29.69

247%

Rwanda 150

189.70 126%

Uganda 150

565.43

377%

Change in dairy income• Ke = 1.22 x 2.47 = 300%• Rw = 1.26 x 1.61 = 200%• Ug = 2.00 x 3.77 = 754%

How it Gets Done

1. Beneficiaries selected based on need, opportunity and initiative

2. Farmers are mobilized into cooperatives/associations/ producer companies

3. Companies are assisted to set up infrastructure to market milk and deliver inputs to members through the ‘Dairy Hub.’

4. EADD staff provide technical assistance to producer companies to achieve farmer goals in sustainable manner

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Value Gravitas

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Gravity

Key product

Leadership

Economics

Contracts

Solidarity/collectivism

How the Hub Works – A Virtuous Cycle of Buyers & Sellers

TRANSPORTERSTRANSPORTERS

TESTINGTESTING

FARMERS

FIELD DAYSFIELD DAYS

FEED SUPPLYFEED SUPPLYAI & EXTENSIONAI & EXTENSION

VILLAGE BANKSVILLAGE BANKS

OTHER RELATED MEsOTHER RELATED MEs

HARDWARE SUPPLIERSHARDWARE SUPPLIERS

CHILLING HUBCHILLING HUB

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Achievement 2Economic and Social Transformation

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•142,000 farmers mobilized into 3,000+ active communities of producers

• 68 Producer companies set up/revitalized

• Farmers earn $ 24 million– 1/3 of retail price

• 80% of 90,000 mobilized farmers in Kenya have bank accounts

• $ 5 million in farmer investment and savings

• 26% leaders are women

•Millions of dairy farmers disfranchised, without any say on direction of industry

• Producer prices = less than ¼ of retail price

• Less than 10% of farmers banked or enjoy input credit

• Communities considered too poor to invest or secure bank financing

•Few women willing to take up leadership positions

Before Now

HUBs - Pillars of Rural Development

Tanykina Community Health Program• 2,000 farmers take up health cover

Kiboga West Dairy Plant• 8,000 litres/day, 1,500 farmers

Kabiyet Dairy Plant •36,000 litres/day•6,000 farmers

Kipkaren FSA•1,500 members• US$ 1 m savings

$24.3m p.a.$24.3m p.a.

Est 300,000 Est 300,000 Liters DailyLiters Daily

Over 142,000 farmersOver 142,000 farmers

Challenges and Opportunities

Challenge Consequences Solutions

Inadequate infrastructure

• 30% of milk unable to reach market

•Lost productivities in dry season

•High cost of cooling and transport

•Water/fodder conservation

•Cost sharing btw farmers and government

Bad governance = ignorance and ethics

• Losses by producer companies

• Shrinking membership and patronage

•Stagnation

• Tailored short courses for managers

• Co-opted board members based on expertise

Smallholder system • Diseconomies of scale eating into profits of smallholder farmers• Laxity in enforcing laws and regulations makes sector less attractive to investors and financiers

• Self regulation through subsector quality agency• Code of conduct to enforce standards and contracts

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• An additional 500,000 farming families;

• Build on EADD Phase I (people, systems, and partnerships);

• 5 countries planned (Ethiopia, Kenya, Rwanda, Tanzania, and Uganda)

• A call for partners and co-investors to leverage resources and generate synergy for greater impact and critical mass

EADD Phase II Planned:2012 - 2017

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Opportunities for Collaboration

•Invest in business development – people, products, R&D•Embedded extension•Credit finance

•Road, water, electricity infrastructure•Legislation - enabling environment

•Embedded services•Infrastructure – cold chain, plants and capacity building

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• EADD works – people, systems, linkages, momentum, return on investment;

• Scale is critical for meaningful impact ;

• Farmer led initiatives = lasting impact

• Opportunity to end hunger and poverty in sight;

• Public Private Partnership is the way to go;

Summary

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http://www.gatesfoundation.org/Pages/home.aspx

www.heifer.org www.eadairy.org