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  • THE ENABLING ENVIRONMENT CONFERENCE Effective Private Sector Contribution to Development in Afghanistan

    SOCIALLY RESPONSIBLE ECONOMIC DEVELOPMENT: THE SHAMALI MODEL FARMS

    Case study prepared for the Enabling Environment Conference

    I. BACKGROUND Afghanistan has a long tradition of exporting raisins. This tradition is continuing today but with mixed success. The quality of the export product does not often meet international standards and therefore obtains only sub-optimal prices. The fertile Shamali Valley north of Kabul is renowned in Afghanistan for its superior conditions for growing grape varietals, fruits and vegetables. The Shamali Model Farms (SMF) is located in the Shamali Valley approximately 20 km north of Kabul. SMF is a private enterprise started in 2004 by an Afghan businessman and is entirely self-financed. Initially designed as a recreational hobby farm, the idea has now grown into the concept for an enterprise that combines significant and long lasting benefits to the local farmers and a strong ethical corporate profile with sustained economic growth and profits. Although the initial preparations for launching SMF began in 2004, SMF was registered with AISA as a private limited operation in 2006. It is anticipated that all preparatory work, including the building of a processing hall, land preparation, drip irrigation systems, access roads, etc. will be completed by mid 2007, when the company will be fully operational.

    It is being planned to introduce the first SMF grape products to the Afghan market in 2008 and to international markets in Dubai in 2009. For this purpose, a separate export business has been established. The farm also intends to produce fresh vegetables, herbs and salads for the Kabul-based market, particularly targeting international hotels, embassies, ex-patriots and foreign agencies. In this initial stage of the development of the enterprise, Shamali Farms has been able to take advantage of a number of factors in its favor. Particularly, the typically small plot sizes of five to ten acres helped shape the concept of a niche farm, producing high quality export products through a concept of winning over adjacent small farmers who would become Affiliate Farms and produce under a standardised brand name.1 Also, the low level of interference from the Government although this may have been more the result of a lack of government capacity than a pro-business attitude has meant that SMF has set up operations with relative ease. SMF has a strong commitment to high quality products and business standards, as well as to high ethical standards with regard to the treatment of employees and customers and adherence to sound and legal business practices (see Vision and Values statement in the annex). Key aspects of the SMF idea include:

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  • THE ENABLING ENVIRONMENT CONFERENCE

    SMF aims to introduce concrete methods to improve the quality of the grapes and the resulting raisins in order to meet the demand in high-value international markets. All products will be processed under the Shamali Farms label and will meet the highest food safety and hygiene standards.

    The Model Farms is used as a practical and

    tangible learning tool for the local farmers for using new, more productive and more environmentally responsible farming and processing techniques to increase value and yield.

    SMF uses, wherever possible, local or regional

    materials that local farmers can procure inexpensively and affordably in Afghanistan or in neighboring countries.

    The enterprise promotes sustainable and informed

    farming methods to reinvigorate Afghanistans traditional farm products and increase exports to better markets.

    Farmers that take up SMF farming methods can

    receive a Stamp of Affiliation to the Shamali Farms brand, and benefit from SMF processing, packaging and marketing their products. Affiliated farms can also benefit from financing opportunities for farm conversion.

    By marketing its products directly, SMF intends to

    showcase a comprehensive seed to shelf process of farming, processing, logistics and marketing. II. THE BUSINESS ENVIRONMENT:

    ANALYSIS OF CONSTRAINTS AS EXPERIENCED BY SMF

    The post-war conditions and continued hostilities and uncertainty in Afghanistan create an acutely challenging environment. Any business person in Afghanistan swims against a stronger current than he/she would in other countries and has to be more creative in navigating these waters. SMFs experience with establishing an agro-based business in Afghanistan includes the continuing struggle with a range of constraints related to regulatory frameworks, government attitudes and the lack of appropriate infrastructure. Land titling and related uncertainties Most business owners and private citizens would agree that at this time it is nearly impossible to receive a clear title from the Government of

    Afghanistan. Unclear ownership records create space for widespread corruption leading to:

    High costs: It has been communicated to SMF by

    more than one source that it will cost Shamali Farms US $ 10,000 to US$ 15,000 to get its title processed. This cost is not bearable for only 15 acres of land.

    No transparency: Going back to even before the

    war to the present time, land titles are not changed in the government books/logs at the time of inheritance, marriages and sales and new title sheets are not provided. Untangling the mess and verifying ownership is complicated at best and bribes are required to get access to the books.

    Falsification of documents and claims on

    property is widespread: This is often done in collusion with government officials. This causes uncertainty on the part of the new buyer. The negative impact of these issues translates into the following constraints:

    Lack of security of land tenure: Any business requires assurances that the property that one pays for in earnest is rightfully, recognisably and clearly titled. In the absence of legal protection, investors and entrepreneurs limit their investment, given the real risk that ad hoc claims could be made on their property.

    No access to external finance: Shamali Farms

    requires financing for its drip irrigation system, modern processing plant for fresh fruits and logistics support such as refrigerated trucks, containers, etc. Following standard procedures, banks and other lending institutions ask for clear titles for the property where the equipment will be used. Since Shamali Farms only has a Horfee title2, financing opportunities do not exist. The Government of Afghanistan, as it was highlighted directly to the President at the London conference, must address this critical issue of land tenure head on. Open economic policies and other market-based regulations will remain meaningless without legal property ownership documented in titles. Business logistics and infrastructure Logistics cover the movement of farm products from the farm to the processing centers, to markets and export points while maintaining freshness, hygiene and food safety standards (i.e. HACCP, GAP and GMP). The particular issue is lack of processing centers located within reach of small

    Kabul, Afghanistan June 2007

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  • Shamali Farms

    farmers, refrigerated transportation and paved roads to keep the look and feel of the product consistent and predictable:

    There is no use producing the best product if the

    product cannot make it to the market maintaining its qualities.

    As a result, farmers and agro-businesses are faced

    with a considerable loss of income potential.3 Generally speaking, encouragement should be given to farmers to form cooperatives where processing and refrigeration facilities can be shared. Shamali Farms, through its own processes and initiative, advocates the conversion of farms to new farming and handling techniques where the converted farms obtain a seal of Affiliation from Shamali Farms. This seal would also permit those farms to participate in the processing, logistics and sales processes owned by Shamali Farms. The cost to the farmer is limited to adapting good farming techniques and he thereby has the opportunity to sell his products at a higher price or simply has an improved chance to sell all of his harvest. Human Capacity The lack of skilled and educated personnel is generally seen as a major constraint to business development in Afghanistan. SMF has made the experience that training efforts face a number of challenges:

    Illiteracy and lack of training in structured

    learning itself can prevent knowledge transfer to happen effectively. Only repetition and knowledge transfer in small doses and with consistency eventually produce results;

    Time to change is generally long. Afghan farmers

    that have worked with Shamali Farms are receptive of the new ideas, but will not adapt them to their farms until and unless they see real results. This is understandable as their livelihoods depend so much on their small harvest. Risk taking becomes unthinkable without tangible proof. They prefer to see someone else take the risk first. SMF has, however, had the experience that although human capacity is at an overall low level, there is a strong willingness to learn across the board. Shamali Farms experience in the last three years clearly indicates that from its own hired labour to the visiting farmers, everyone is ready to learn new farming techniques, to understand what their counterparts in other parts of the world are doing and to generally improve their knowledge base about their primary livelihood. The motivation

    is clearly to get more out of their land, reduce risks and in summary earn more income. A