1. Selection and feasibility phase: As a first step, it should be well understood what potential the farmers have to move up the value chain, based on the commodities or resources they have. What form of processing of produce could add such value to the final product and how viable are these? How much value could be added based on the prevailing local market? What technologies are available and how much investments are required? Are all the various levels of processing (primary, secondary etc.), likely to be economically viable by themselves? This kind of quick scan gives good insight into the potential of the various value-addition options that could be explored. A thorough assessment of the practical and economic feasibility is to be made especially in remote and backward areas, with practical knowledge about the local circumstances, as well as with a good understanding of the value addition chain of the commodity involved. What technology options are available and how can the foreseen famer-led company distinguish itself in the market with this technology is an important measurable for this initial phase. In addition, the assumptions in the feasibility should at least be assessed for a worst, best and a realistic, conservative scenario. Based on this feasibility study, an overall risk analysis involving openness of the market, subsidies, price inflation, harvest losses can be made to gain insight in the financial consequences of these scenarios. By categorizing these factors according to the influence the operational management of the farmer-led company may have on them, the risk assessment is used during operation as a management tool as well.
2. Funding and organisation phase : Based on the above feasibility, an investment plan is to be prepared for the social investors and banks, to secure sufficient funding. Besides the social investor and the banks, also other funding options are to be explored, e.g. subsidies related to promotion of rural development and agriculture sector or relevant clusters, export/import subsidies, grant support from development organizations, soft-loans from development banks etc. Important to include in the investment plan, is the working capital requirements during the operational phase which should be endured in investment plan. Particularly for new companies, without a financial track-record, it may prove difficult to secure regular loans from local banks. Once it is clear which business is feasible and funds can be secured, the legal organization of the initiative is to be arranged. Anchoring the farmer interests as prime objective, Business rigour is achieved through professional management and oversight; Board of Directors (BoD) is to reflect the professional disciplines, alongside farmer representatives. BoD is to appoint the company’s managers; who reports to the BoD. Alignment of the Articles of Association of the farmer trusts/associations, with the Articles of Association of the joint venture companies is done. Long-term, gradual ownership transfer arrangement anchored in Share Holders Agreement, the interests of the social investors are to be guaranteed, e.g. through representation in Board of Directors. Regular meetings are to be held BoD. Provisions are to be made in case one or more groups of farmers are to discontinue (e.g. when not supplying enough produce or some malfunction): the continuity of the company should not be jeopardized.
- Profit of the company is to be allocated for: o Repayment of the investment to the social investor o Capitalization of the company o Premiums to supplying farmers and new investments in other commodities
- Sharing of the economic benefits with the farmers ( like premium payments) are to stimulate sufficient supply of good quality.
3. Operation and transfer of ownership phase To create the necessary infrastructure, the best available technologies and suppliers are to be sourced, preferably under supervision of one single responsible party with a proven and verified track record. Clear contractual agreements and payment conditions should secure an efficient construction, to be realized within the allocated budget lines. At the same time, a professional team of qualified staff is to be recruited (from management, finance, quality to operational staff), that is able to run the company upon completion of the construction. This team is not only expected to operate the business in a profitable manner, but also understand and cope with the complexity of the social business, in particular to involve and report to all stakeholders concerned: from farmers to the (social) investors. Some Results at a glance Some of the major results and spin-offs of the apple project in the Himalayas are:
- Six profitable collection points at orchard level (primary level) established
- 700 MT of premium apples stored in the Long-Term Storage (secondary level) and sold off-season during pilot phase
- 15.000 litres of juice successfully produced as commercial test pilot phase
- Many of the main apple traders have visited the collection points and/or long term storage and have become regular customers
- Farmers have seen significant increase of their income, in comparison to their traditional sales channels. The benefits reaped are also in terms of time saving and risk reduction. Their products even reach the export market.
- High commitment from the farmers and their representatives
- All collection points are moving into collective buying/grading/sorting/packing/processing of other commodities as well (apart from apples).
- The region is enjoying much more attention now as a main apple growing area
- Farmers do not need to spend time on sales of their product, but can concentrate on proper picking/harvest of the apples and on their orchard management.
- Women groups have been formed, specifically for the juice manufacturing Social and Economic returns on investments : Full ownership of farmers The Joint venture companies are operating at operational profit and are able to secure the regular Govt. subsidies available for businesses focusing on farmer and farming sector improvements.
Bank loans availed by the companies are repaid on time and it is expected to transfer the full ownership to farmer in 2-3 years. Apart from economic returns, a social return on investment exercise is conducted on regular basis which impact and monitor the positive social changes on the life of farmers, and communities which further reflect in highly positive ratio of social return an investment; it is now time to invite farmers from other areas to farm their collectivities for activity partnership with agri businesses.