News - September 13, 2012

Profits for Africa

Development aid is difficult to combine with the profit-minded approach taken by the business world - at least, for a long time this was the conviction of aid workers and politicians. Not any more. The practical, market-oriented thinking of Dutch entrepreneurs is now seen as precisely what is needed to combat poverty in developing countries. 'The game has changed and it is like a breath of fresh air.'

The business world functioning as a powerful motor of poverty alleviation and sustainable development. This was the policy line with which state secretary Ben Knapen made his mark on the Dutch development aid sector during the last cabinet's term of office. In contrast to foregoing decades when aid to developing countries was largely channelled according to the idealistic models of development professionals, the market economy is now given pride of place.
Development projects are supposed to contribute to the economic development of a country, and who can do more for that cause than entrepreneurs? After all, they are eminently practical doers with a nose for new markets and business opportunities, goes the argument. In this light, the development of agriculture is seen as crucial to food security and to stimulating the rest of the economy. On the basis of this thinking, food companies in the Netherlands are expressly drawn in to market-oriented development projects.
The Centre for Development Innovation (CDI) at Wageningen UR, which develops knowledge and innovation projects in developing countries, noticed the change immediately. For the last year, the centre has been working regularly with Dutch companies on projects in which market developments are central. 'The game has changed and it is like a breath of fresh air', says deputy director Wouter Hijweege of the CDI. 'We have got to think out of the box now.'
All of a sudden, Hijweege and his colleagues find themselves working with terms such as 'inclusive business': market development with enterprises that also protect the environment and seek to combat poverty.
Potatoes in Kenya
In this context, Africa is hot, the CDI staff are noticing. Ten years ago Africa was still the lost continent but now it boasts a healthy economic growth rate and is seen as an interesting source of raw materials and of markets for products. Planting material, for example. In Kenya there is a massive shortage of good quality seed potatoes. The reason is that the Kenyan government deliberately keeps foreign suppliers out in order to protect their own seed market. The result, however, is that local farmers produce far fewer potatoes than they potentially could, as the CDI discovered when they conducted market research in the sector.
With the Wageningen researchers' report in his hand, state secretary Bleker went to talk to his Kenyan counterpart and succeeded in convincing him of the advantages of freer trade relations. Now 28 new Dutch potato varieties are being tested by the Kenyan inspection service. If it gives them its stamp of approval, it is expected that potato production in Kenya will boom and Dutch seed potato companies can get cracking. At first sight, this looks like a Dutch export promotion exercise, but it is more subtle than that. Dutch exports of seed potatoes will be limited because the potatoes are too expensive to be supplied directly to the Kenyan farmers. They only become affordable after two or three rounds of multiplication in Kenya, for which local farmers are needed. So this is a genuine food security project, says Hans Nijhof of the CDI. 'We are going to establish a commercially minded platform for the potato chain, with breeders, multiplier farmers, processers and farmers taking the lead. The aim is more seed potatoes in Kenya so that more farmers make a better living and more people eat cheap potatoes.'

Existing projects
Market forces have been introduced into longer running projects too, says Marja Thijssen of the CDI. For the past three years, Thijssen has been advising a project in Ethiopia that aims at strengthening the seed sector. It began with farmers' groups who multiplied seeds of maize, wheat, teff and other crops. They usually did this under a government contract in which the relationship with the buyers - small-scale farmers - was weak. Thijssen and her colleagues ensured that the 'seed farmers' established companies, organized themselves better and paid more attention to quality. They also started actively promoting the seeds on the local market.
Under the influence of the winds of change blowing from The Hague, Dutch seed companies were drawn into the project. The seed potato company HZPC supplies Dutch seed potatoes which are then multiplied locally, and vegetable seed company Bejo supplies seeds to small farmers. Other plant breeding companies are considering joint ventures with commercial Ethiopian nurseries. 'This places the Dutch companies among the suppliers on the seed market', says Thijssen. Together with medium-sized Ethiopian growers, this should make for a strong cluster of seed producers.
Not new
Is this a fundamental change of course? Yes and no. The influence of Knapen's policy is unmistakable, but at the same time this new form of development cooperation has not appeared suddenly out of the blue, says CDI director Jim Woodhill. There has been a growing interest in recent years in chain development and markets in developing countries, an interest shared by NGOs. 'In the old day we focused mainly on increasing agricultural productivity. Now we know: without a market, small-scale farmers won't do that. A good market is a huge stimulus for farmers to improve their productivity.' In 2008 the World Bank calculated that 450 million small-scale farmers in developing countries account for half the food produced around the world. Many of these farmers live in Africa, where the population is set to double between now and 2050. They are the key to poverty alleviation and food security for the future.
One of the first western companies to get involved with small African farmers was Unilever. For its Lipton Tea brand Unilever forged links with 300,000 small tea farmers in Kenya. The company was already buying their tea but wanted it to meet the criteria of the Rainforest Alliance. In 2008, the agricultural economics institute LEI, which had experience with Farmer Field Schools, was brought into the picture to provide training for small farmers, which was done in collaboration with a Kenyan partner. Meanwhile, 270,000 tea farmers have achieved sustainability certification, higher productivity and higher incomes, reports Unilever.
No one dares to claim yet that involving the business world in development aid has a positive impact. It is too soon to evaluate this new approach, says the CDI. The projects have only just begun. 'There are good arguments for taking this course, such as the fact that markets are the drivers of change and development', says Jim Woodhill. 'But only at the end can we establish who really benefits from these public-private partnerships in development cooperation. If we Western consumers pay more for a Fair Trade product and 75 percent of the extra price goes to the supermarket and only 2 percent to the African farmer, something is wrong somewhere. Market-oriented projects are intended to combat poverty indirectly, via economic development, but there is no direct link.'
What is more, a project may be successful but there is still no guarantee that it stimulates the economy as a whole. This is the view of Sietze Vellema, researcher at the Knowledge, Innovation and Technology chair group in Wageningen and at the LEI. One of the things he studies is how investments by Dutch flower growers contribute to the capacity for innovation in Ethiopia. 'Some growers do not understand that you cannot simply transfer technical tricks from Westland in Holland to Ethiopia, but that you need expert Ethiopian technicians to make a success of it. And then you run up against the low level of Ethiopian education. So in collaboration with Wageningen there is work going on to modernize teaching methods. Then it is immediately clear that these entrepreneurs are taking a long-term perspective.'
Without such links between companies and universities, there is a risk that the long-term economic benefits are limited to job creation for the Ethiopians who work in the greenhouses. That is what we don't want, says Vellema: 'an island of success'.
World market
Western multinationals are becoming increasingly interested in small-scale farmers in development countries. This applies especially to companies in the tea, coffee and cocoa sectors. The main reason for their interest is their wish to secure their supplies. Production by growers in developing countries, mainly small farmers, does not keep pace with the demand on the world market. Up to now western companies have mainly done business in developing countries with modern, large-scale and export-oriented suppliers, partly because this made it easier to make arrangements for production methods to meet the criteria for certification. Now they need to leave this 'comfort zone' and get to know the world of the small farmers with little to invest. This has led NestlĂ© to invest 110 million Swiss francs in the coming years in improving the living conditions of these farmers and their communities. Other companies are working with NGOs and knowledge institutes to make this kind of link.