Creating Shared Value & Agrarian Reforms enhance Productivity and Sustainability of Agribusiness

In the attached article from VAB member Mujeeb Rashid, you can read a very detailed description of how Shared Value processes play out in the agribusiness production cycle. His material highlights how different actors have an impact in various production phases: from the inputs and contributions of local governments, on to financial institutions, companies and agro cooperatives. Although described by Mujeeb in an agribusiness context, Shared Value is something many businesses (specifically their governance and advisory boards) will need to think about in the future as our global economy in its current VUCA (volatile, uncertain, complex and ambiguous) state requires greater thought and long-term planning for business resilience when it comes to resources and materials sourcing (e.g., whether its battery production for electric vehicles, sourcing ingredients for food production, or supplying energy for global data centres). All boards need to guide businesses committed to sustainability, resilience and fair practice toward suppliers over the long term. If they do not, they may lose critical production partners and, worse yet, buyers of their goods and services.

Creating Shared Value is a concept that was developed by Nestle (around 2005) at a Company level to assure itself in future of sustainability in the supply of its Agricultural Raw Materials, that were of the right Specifications and Quality, with full Traceability. The concept also required that the materials came through a chain of processes that were Ethical and Environment friendly. This Concept has since been adopted by several other multinational corporations.

The following points highlight the Distinctive nature of this concept.

1. As against CSR (Corporate Social Responsibility) that requires the Company to divert a portion of the profits earned to invest in Social and Environmental programs, Creating Shared Value (CSV) is based on the Company’s investment in the Community, Environment and Eco Systems that produce its raw materials. This is achieved through Investment in Education and Technical Knowhow to increase Productivity, Quality and Wellbeing of the farmers.
2. For attaining long term Sustainability of supply each link of the Value Chain should become profitable and sustainable. This will require that the farmer should receive a fair price of his output that fully covers his cost of land, cost of all inputs that go into the soil, labour, insurance premium against uncertain weather, financial and storage cost. Similarly, a fair return be ensured for the subsequent Entities in the value chain.
3. Last, but not the least, is the need for an official Contract between the Company and the Farmer and subsequent entities that clearly specifies the Quantity, Quality, Delivery date and a Price that is profitable to the farmer and is better than the other cropping options that he has for that period. Sustainability of supply will be achieved when both the Company, the Farmer and subsequent entities have gone through this cycle several times to build mutual trust.

When we start thinking of applying the concept of CSV at National or Provincial level then our approach has to also consider other Players and Stakeholders.

At the National and Provincial level there are a multitude of Companies and Farmers with  vastly differing needs. Here, the following players must support and work with each other to implement CSV effectively with their specific Roles and Responsibilities.

The Local Government Including Irrigation department

The local Government at District level is expected to support the efforts of all players to achieve the farm output and productivity goals. They must help in the consolidation of land holdings, Setting up Farmer Cooperates, Agricultural Credit and speedy disposal of cases relating to recovery of loans and payments against supplies. More importantly, the local government must set up Institutes that supply Technical Knowhow and Training to farmers at their doorsteps regarding Good Farm Practices, Soil quality, Water, Farm Inputs and Future weather patterns. Many Aid Agencies in the world could be willing to provide this Know how and Training as Aid directly to these institutes rather than hand over the money to the Government.

Financial Institutions

Financial Institutions for Agricultural Credit should be set up as Subsidiary branches of banks at the National level that will give credit for the crop cycle. They may not hand over cash to the farmer but collaborate with Companies supplying Farm Inputs and pay them for the supplies made to the farmer. The local government may keep a track that the farmer uses these inputs on the farm and does not sell them into the market. Additionally the financial institutions must have an insurance cover for the farmers against any unforeseen and adverse weather conditions that may reduce farm output and productivity.

The Government may also set up Instruments and Mechanisms for Corporate Farmers and Farmer Cooperatives to obtain long term funds from the stock market thus allowing the Public to invest in the development of Modern agriculture be it for growing of crops or modernising logistics.

The Companies

The role and responsibility of the Companies is to supply high Quality farm inputs for the Crop Cycle to raise productivity to the desired level, on time and according to the needs of that area. They must provide inputs at competitive prices on reasonable credit terms in collaboration with the Financial Institution and Local Government of the area.

New Companies should also be formed to buy the Crop after Harvest from the farmer at a price that provides the farmer with a good payback on his efforts and inputs including an Insurance premium for unforeseen weather conditions.

These companies should also grade and package the products for retail sales. The companies should also invest in Cold storages for perishable products.

The farm produce could be owned by the Farmer himself (if he pays for the packaging materials and storage rentals) or the handling Companies themselves. They must have Online Links with Wholesale markets in large cities to whom they should deliver the products for Distribution to Retailers at a price that covers all costs up to then, along with a reasonable margin to ensure future sustainability

Companies should also be formed to offer services for the Preparation of Soil and Harvesting that charge on Per Acre basis to spare the farmer from investing in expensive equipment

Farmers’ Cooperatives

For small land holders after consolidation of their holdings to an Economic Scale it would be necessary to Create Farmer Cooperatives that would do the collective bargaining with Companies and Financial Institutions for Farm Inputs and Crop cycle Credit. Besides landless farmers who have been allocated leased land from the surplus of Large Landowners must also be organised in to Farmer Cooperatives. These Cooperatives must hold sufficient land to work on economies of scale.

These Farmer Cooperatives must also invest in facilities for Grading, Packing and Storing their produce based on long term borrowing from Banks. They will need Cold Storages and Auction Halls  where the buying Companies may pick up the Graded and Packaged Products  for supplying to the Wholesale Markets. This is actually happening in Europe and the USA for the last more than 50 years. Once all these Activities are implemented in a Professional manner Funding will not be a problem.

The case for “Rethinking” Agrarian Reforms.

Starting anew a complete Land Audit is required in the Agrarian landscape to ascertain the Quantitive as well as Qualitative aspects of the total Arable Land available in the country based on Geography, Rainfall Patterns and Irrigation availability, potential for Drip Irrigation in areas of water shortage where selected crops can be grown using this method and prospects of using Solar Energy to access ground water.

This should be cross matched with availability of water from other seasonal factors. Quality of soil must be assessed in different areas to ascertain the potential of its replenishment wherever that might be the reason for lower output and productivity.

Produce Index Units (PIU) should then be established for all areas so that in the process of redistribution of surplus land taken away from Large Land owners the Land Rental for each area can be determined. This land rental can be used to lease this land for long term Corporate Farming as well as for renting land on long term to Farmer Cooperatives. This system will be fair to all.

Most of the large Landholders in Developing Countries are absentee landlords who are usually living in the big cities. That is the reason agricultural output and productivity is so low on their farms and in the country. Whatever incomes they have from land is invested in buying real estate in the large cities and not in increasing productivity of their land. That is the most compelling reason for putting a ceiling on individual land holding.

Farmers holding land above the ceiling must be asked to declare the extra land surplus and should be happy receiving a rental based on PIUs so that the land could be given to Landless Farmers’ Cooperatives for achieving output and productivity Benchmarks.

Landless households are usually living below poverty line with little hope of becoming part of the mainstream society. The kind of Education they receive, if any, does not help them in contributing to the growth of agricultural output and productivity. Thus they are moving to the large cities where they are not needed.

Large tracts of cultivable land is lying barren due to deterioration of soil and lack of water. Small land holders are at the mercy of Money Lenders due to their financial weakness and therefore have no holding power after their harvests so they have to sell their harvest at throwaway prices. They borrow money again for the next sowing of crops and never have enough to buy the required inputs for the proper replenishment of their soil.

The case for rethinking land reforms must be based on the following Objectives;

1. To Implement the concept of Creating Shared Value across the entire Agricultural Land Scape.
2. Eliminate Absentee Landlordism. No Landowner should hold land beyond his ability to manage it so as to achieve Regional output and productivity benchmarks.
3. Improve Output of Crops and Productivity to International Benchmarks.
4. Taking Land less farmers out of the Poverty Trap and bringing more cultivable land under cultivation.
5. Ensuring Economic size of holding to small land owners and forming Farmers Cooperatives to create economic size of holdings.
6. Providing Relevant Agricultural Education and Training to the youth to discourage Migration to Large Cities.
7. Economic and Infrastructure Development of Agrarian sector

For all the above things to happen, it will be necessary for the four players namely; 1) Companies, 2) Local government including Irrigation Infrastructure 3), Financial Institutions and Farmer Cooperatives to work together for the uplift of Agricultural Output and Productivity.