By Beatrice OumaOne of today’s parallel sessions of the Agricultural Investment, gender and Land conference looked at the business models through which investors engage farmers .
The first presentation by Emmanuel Sulle looked at the out-grower scheme model that has been adopted by sugar companies in Tanzania, specifically the case of Kilombero Sugar Company. The company promoted the out-grower scheme as source of cheap loans to farmers, improved infrastructure and social amenities. The contractual arrangements are done through a cane supply agreement which stipulates the division of proceeds between Kilombero and the out-growers through their associations. This division of proceeds currently stands as 57% for the out-growers and 43% for Kilombero. Oxymoronically, increased production by the out-growers has led to a reduction in cane harvesting because of a number of reasons. First, Kilombero’s milling facilities are operating at full capacity which means they sometimes have to stop farmers from delivering cane. Secondly, the ongoing arbitrary importation of sugar in Tanzania is proving challenging for local production. These factors result into late payments for the out-growers who have to absorb the costs of production. Scarcity of land and a decline in sugar profitability are also making it difficult for small out-growers and new comers to join the industry. The study cautions that unless these issues are addressed, poor out-growers are unlikely to benefit much from the initiative.
The second presentation by Sane Zuka from Malawi also looked at the out-grower model in relation to benefits/ or lack thereof by women. Out-growers sell sugar cane to Ilovo, a company specialising in sugar production, through private contractors. Farmers are then paid net returns after of all management and association fees from gross sales of sugar sucrose have been deducted. Other deductions include membership fees to these private contractors and overhead fees which include millers charge (40%), management fees of between 15% to 20%. Other fees include development charges, irrigation charges, fertilizer transport charges & loan repayment charges. All these costs imply that farmers, especially the poor ones hardly make any profits. This, in turn is has made the out-grower scheme very unpopular among farmers and many, especially women are withdrawing, as there is no much economic benefit.
A corporate social responsibility perspective was presented by Craig MacGillivray from the wine farm, Solms Delta in South Africa. Because of the land inequality history in South Africa, Solms Delta set out to institute land reforms within the farm through a Black Empowerment programme. The company set up a Trust for the farm workers which now owns 33% of the business. Profit from wine sales are used to build and refurbish decent and comfortable homes for farm workers and their families, create recreational facilities, and provide other social services.
The last presentation of the session highlighted a case by Vanduzi company from Mozambique which has established contractual arrangements with farmers to grow and sell vegetables for export market. The company signs individual contracts with farmers and offers support in terms of inputs and technical support. According to Takunda Shava, 30% of contracted farmers are women.
The key message from the session was that no business model is perfect and each context requires a unique approach. As highlighted by the Malawi case study, while the out-grower model has the potential to bring opportunities to farmers, the same model can directly or indirectly threaten their social and economic survival. The South African case study highlighted challenges in investing a lot of time and resources in social relations and the contractual arrangement study from Mozambique has the potentially to lock out poor farmers whose businesses are not considered viable and sustainable.
