How are inclusive business models working?
In recent years, there has been increase in the flow of investment to agriculture, particularly due to rising commodity prices. Private sector investments resulted in large-scale acquisitions of farmland in lower and middle-income countries, which brought a long-standing controversial debate about “land grabbing” and “development investment” to the forefront, as land is critical to livelihoods and food security.
Within this context, the FAO Investment Centre has recently published the “Review of smallholder linkages for inclusive agribusiness development” under its “Best Practices in Investment Design” series. The report, a pre-investment review of commercial agriculture, was financed under the FAO/World Bank Cooperative Programme. The paper introduces the conceptual framework for the promotion of the commercialization of agriculture through the use of collaborative business models, thus providing an alternative to large-scale acquisitions as well as opportunities for smallholder farmers.
In particular, this publication focuses on a broad range of collaborative business models, including contract farming, outgrower schemes and joint ventures, and explores key factors that have led to successful and sustainable partnerships. The report describes their advantages and disadvantages and the conditions under which different models could develop and be sustainable. It also addresses the roles of stakeholders and the inclusiveness and fairness of trade relationships between smallholders and companies.
The analysis shows that the most viable business model was the nucleus estate with outgrowers, followed by models that involve only processing. This is also confirmed by experience worldwide, and by a recent study on large-scale agricultural investment projects over 50 years carried out by the World Bank. The analysis also shows, however, that there is no single model that fits all purposes and there are benefits and risks to each given model.
The publication concludes that the key factors for successful smallholder linkages are a genuine interest on the part of investors to work with local farmers and communities, transparency in the price mechanism and fair prices, access to quality inputs and technical advice and a strong commitment of the parties engaged in the schemes, namely government, private companies and smallholders.
Please find attached the full report.