ISSUE 7

PURCHASE FOR PROGRESS

APRIL 2013 NEWSLETTER

ISSUE 55

APRIL 2013

Farmers Organizations and Access to Agricultural Loans – a Case Study from Kenya

In early 2013, P4P Kenya undertook a case study to determine the

degree to which P4P supported Farmers’ Organizations (FOs)

were accessing loans, focusing particularly on whether or not

WFP contracts were used to support loan applications and the

extent to which repayments were being made in accordance with

loan conditions. Feedback from FO management teams and

information from the banks was analyzed.

In Kenya, P4P FOs are able to access two types of loans: inputs

and commercialization loans. For input loans, borrowers are

provided with in-kind farm inputs, mainly seeds and fertilizers,

provided by local agro-dealers. The annual interest rate charged

on these loans varied from 10 to 12 percent, with repayment

within 12 months at a fixed interest rate. The commercialization

loans’ annual interest varied over the years from 15 to 25 percent

on a reducing balance basis, with the principle to be repaid in a

lump sum within four months from the date of receiving the loan.

Of the 36 FOs that supplied grain to WFP between 2010 and 2012, 10 accessed loans at least once during this

period, with three FOs using WFP contracts as collateral. Two of these three FOs have consistently taken loans

from 2010 to 2012, progressively increasing the borrowed amounts. The total amount secured by the 10 P4P–

supported FOs was US$ 800,000, of which US$ 500,000 went to the above-mentioned three FOs, using WFP

contracts as collateral.

To date, P4P-supported FOs have had a 100% loan repayment rate and no concern has been expressed by the

lending institutions regarding repayment. Although accessing credit in the context of P4P is generally positive,

several groups have been able to fulfill WFP contracts without formal bank loans.

A P4P Access to Finance Working Group was established in April

2011. With members drawn from FAO, IFAD, P4P and technical

units of WFP, this Working Group has helped to define P4P’s role

in facilitating Farmers’ Organizations’ access to finance and will

play a key role in supporting this theme under the P4P Global

Learning Agenda.

Inside this Issue:

Access to Finance: Progress in Kenya and Ethiopia on pages 1-2

Lessons from a Famine: Markets Matter by Roger Thurow on page 3

LAC Validation Update on page 4

Partnership Update and PAA Africa Workshop on page 5

Other Updates and Information on page 6

20 P4P pilot countries Asia: Afghanistan Africa: DRC, Ethiopia, Ghana, Kenya, Burkina Faso, Liberia, Mali, Malawi, Mozambique, Rwanda,

Sierra Leone, South Sudan, Tanzania, Uganda, Zambia Central America: El Salvador, Honduras, Guatemala, Nicaragua

Smallholder Farmers in Kenya. Copyright WFP/P4P

Access to adequate credit at affordable interest rates is a critical factor for enabling the aggregation of commodities for

collective marketing. When farmers’ organization (FOs) members are not paid, even partially, upon delivery of their

produce, they are tempted to sell more of their production to local traders for immediate cash. Though it remains a

critical obstacle for smallholder farmers, progress has been made. The achievements made in Ethiopia and Kenya in

linking smallholders to credit demonstrates that, with the determination and commitment from all key players, it’s

possible to overcome the myriad of obstacles.

The benefits for the borrowers:

ncreasing land holding size; Increasing production by up to 60%; Investing in non-agricultural income

generating activities; Taking care of their families’ needs; Investment in assets, such as transport and

construction of stores.

ISSUE 55 Page 2

Ethiopia: Farmers’ Organizations Access Finance Thanks to Joint Efforts

To expand domestic trade in Ethiopia, access to financial services has been a primary constraint for most Cooperative Unions (CUs). Cooperative Unions in Ethiopia are composed of anywhere from 7 to 91 Primary Cooperatives. Cooperative Unions have consistently listed access to financial services as their primary challenge in annual Cooperative Union surveys undertaken by P4P in Ethiopia.

Currently, rural financing is chiefly accessible through Micro-Finance Institutions in small amounts. This is helpful for poor households that do not have any form of collateral, but not viable for Cooperative Unions that require large loans to satisfy institutional buyers such as WFP. Government regulations currently allow only exporters to obtain “output financing” loans, that is, the money required by the seller to aggregate and process the required commodity as per contract specifications. In addition, the disbursement of the loan requires other conditions including a third-party payment agreement. This is an agreement between buyer and seller to channel all payments through a specific bank account where the bank has power of attorney to ensure that the loan is repaid, and thus minimize the risk for the bank. Consequently, lower capacity Cooperative Unions that only trade in staples in the domestic market have been left with no solution.

An Alliance is Formed

In June 2012, the Government of Ethiopia, the Ethiopian Agricultural Transformation Agency (ATA), WFP, USAID, Sasakawa Africa Association, TechnoServe and ACDI/VOCA established the “Alliance to Pilot and Scale Integrated Support to Maize Farmers in Ethiopia.” The objective of the Alliance was to unlock the potential in the maize value chain and achieve the government’s objective of significantly increasing marketable maize surpluses. This was to be achieved by providing a complete bundle of services, including seeds and fertilizers, finance, agricultural best practices, storage and post-harvest handling facilities, together with access to stable markets.

As part of the project, the Alliance agreed to facilitate access to output financing loans to allow 16-selected CUs to increase their sales to WFP. Initially two banks, through a USAID loan guarantee, were part of the Alliance; USAID’s role was to cover part of the risk, thus allowing participating CUs to obtain loans to invest in new cleaning equipment and to aggregate the maize from their members. However, the Alliance had more ambitious plans, and needed other partners to achieve its objective of selling over 28,000 metric tons of maize to WFP. The United Kingdom’s Department for International Development (DfID) supported the Alliance by agreeing to use its 2013 multi-year pledge to WFP’s operation as collateral for signing US$12 million of WFP procurement contracts for maize in June/July, almost a year before final delivery was expected. This enabled WFP to provide a pre-planting contract, with clear financial obligations to the participating CUs, through forward delivery contracts. While DfID’s exceptional flexibility was crucial to the success of this large-scale transaction, still another partner was required to finance the CUs.

Finance is Secured

After several high-level meetings and negotiations, the Commercial Bank of Ethiopia (CBE), reassured of the solid nature of the initiative, joined the Alliance. WFP’s Forward Delivery Contracts, coupled with an agreement between CBE, CUs and WFP, were crucial factors in finalizing the loan. The CBE agreed to disburse loans of up to 70 percent of the value of the contract, without need for further collateral, at a special discounted interest rate of 7.5 percent. TechnoServe and ACDI/VOCA assisted the CUs to satisfy CBE’s loan requirements and make them “bankable”, by including the provision of training to each CU on creating a business plan and submitting the loan application. Sasakawa extended its expertise in post-harvest handling management to ensure that the maize satisfied WFP’s quality standards. With the action of many partners, P4P-assisted CUs have been able to access an unprecedented US$ 2.3 million, allowing some of them to contract up to 3,500 metric tons of maize in a single contract. This represents a performance improvement of over three-fold since 2010 when the first P4P purchase in Ethiopia took place. Since loans and repayments are still on-going the full picture regarding the loan repayment success rate is still emerging, as is the adoption of the new “business culture” by the CUs. A risk remains that the CBE might conceivably rate some of the P4P supported CUs as “no longer bankable”. A key challenge that remains is encouraging other banks to join the partnership, which will support future sustainability.

Commodities Ready for Sale in Ethiopia. Copyright WFP/

Melese Awoke

Page 3 ISSUE 55

Lesson From A Famine: Markets Matter

This article was originally published on May 13th 2013, in the Huffington Post.

Roger Thurow

Ten years after the Ethiopian famine of 2003, when international food aid rushed in to feed 14 million people,

another World Food Program (WFP) tent has been erected on an open field. But this isn't a scene of food

distribution. It is a scene of food purchase.

The action happens on the grounds of the Sidama Elto Farmers' Cooperative Union in Awassa, Ethiopia. Sidama

Elto is one of 16 cooperative unions in Ethiopia that have signed forward contracts with the WFP for the purchase

of more than 28,000 metric tons of maize grown by their smallholder farmer members. The maize, which is part of

112,000 tons of food the WFP purchased in Ethiopia last year, will be used for WFP relief distributions in the

country. Ten years ago, many of those farmers and their families were receiving food aid from the WFP.

One of the major lessons in agricultural development over the past decade is this: Markets Matter. The 2003

famine tragically, and incomprehensibly, followed two years of bumper harvests in Ethiopia. The surplus production

overwhelmed the country's weak and inefficient markets. There were no export channels; the domestic market's

ability to absorb the harvests was crippled by woeful infrastructure. The food piled up on farms and prices

collapsed, upwards of 80% in some areas. Farmers lost incentive to plant the next year. Then the drought hit, and

feast turned to famine. The markets had failed before the weather did.

That gobsmacking turnaround triggered a reversal of the neglect of agricultural development that had set in since

the 1980s, as I noted in my TedxChange talk last month. In the past decade, science and research geared toward

improving the work of smallholder farmers (who produce the majority of the food grown in the developing world)

have been reinvigorated; so too have trade and business efforts accelerated to provide greater market incentives

and opportunities for the farmers. Prior to 2003, boosting agricultural production -- growing more food -- was the

primary focus and developing markets was considered to be a "second-generation problem." Now, markets share

top billing with production, as it should; markets provide incentive to produce more.

In Ethiopia, it started with the creation of the Ethiopia Commodity Exchange in the wake of the famine. Now, the

mantra spreads, in radio dramas, government pronouncements, business negotiations: If you grow it, someone will

buy it.

The WFP's partnership with Sidama Elto is part of its Purchase for Progress (P4P) program, which uses the WFP's

purchasing power to create markets for smallholder farmers. Supported by the Bill & Melinda Gates Foundation,

and implemented in collaboration with the government of Ethiopia through the Agricultural Transformation

Agency (ATA), P4P works with the farmers to improve the quality of their crops and the post-harvest handling.

Simiret Simeno, deputy manager of Sidama Elto, says that for the first time its 13,000 farmer members see that

better quality can bring better prices. And they can also see their contribution to healthier communities, as one of

the markets is an expanding network of school feeding programs supplied by locally grown crops rather than food

being shipped in from abroad.

The ultimate goal of the WFP purchases is to demonstrate to commercial buyers that smallholder farmers can

reliably produce high-quality food worthy of their business. Sustainable success here could also bear witness to the

potential impact of President Obama's proposed food aid reform, which would allow for nearly half of the U.S.

food aid budget to be used to buy food nearer to the hunger crises - providing markets for smallholder farmers --

rather than shipping it all the way from American farms (as has been the U.S. policy for decades).

These public-private ventures bring both maturity and modernization to markets that hadn't changed much for

centuries. Working with local banks and donor governments, P4P has introduced forward contracts to

participating cooperatives and smallholder farmers. The ATA has also been crafting links between farmers and

commercial buyers of several crops, like teff, barley, sesame and chickpeas.

Above all, says Khalid Bomba, the chief executive officer of ATA, "Smallholder farmers need confidence that there

will be buyers for what they grow."

And confidence that the misery of 2003 -- the misery of failed markets -- won't happen again.

AERC CONVENES CENTRAL AMERICA P4P DATA VALIDATION MEETING

San Salvador, 16-18 April 2013

The African Economic and Research Consortium (AERC) was selected as WFP’s technical partner in March 2011 to support

the quantitative data collection and analysis of P4P survey data. As part of this process, AERC is required to host periodic

validation meetings to present and discuss emerging results in order to have them validated by peers. The first validation

workshop was held in Lusaka, Zambia in August 2012 and participants included academics and development partners with

an interest in P4P (see September 2012 Newsletter for further details). AERC convened this second validation meeting in

San Salvador, El Salvador on behalf of P4P from 16th to 18th April.

A deeply engaged group of agricultural development practitioners, Government officials, representatives from key

P4P partners in the region, P4P Country Coordinators and P4P M&E officers met with academics from the region

and the analysts from AERC to peer review, contextualize and validate observed changes in selected P4P

indicators.

As significant impacts were not expected three years into implementation for El Salvador and one year into

implementation for Guatemala, the analysis presented for validation focused on whether P4P had achieved selected

intermediate outcomes or results, which would ultimately contribute to the longer term anticipated impact of

increasing participating smallholder farmers’ incomes and livelihoods (see box for the outcomes).

Key Observations

Deliberations and recommendations from this data validation

workshop largely echoed those from the Zambian data

validation workshop and included the following:

Significant concerns related to the relatively small

sample sizes (especially for FO samples) and the way

FOs were selected and assigned to treatment and

control group. Implementation priorities often

outweighed the purely scientific approach of randomly

assigning FOs to treatment and control groups.

While the above may compromise the attribution of

observed changes to P4P using comparison groups,

techniques to control for this selectivity bias exist and

were discussed, including using models such as

“Difference in Differences”.

There was consensus that the wealth of available

qualitative data on the characteristics of the P4P FOs

can be used to complement and interpret the

quantitative data to be able to tell a credible impact

story of P4P at FO level.

Despite its limitations (small sample size, selectivity bias), there are no other regular panel surveys on FOs in

the region besides the annual P4P FO surveys, and therefore, participants valued this as a unique source of

data to observe changes in FO characteristics across a five year span.

In general, the quality of the data collected was deemed good and all indicator values (except maize yields

which appeared too high in some cases) were found consistent and in line with secondary sources, therefore

useful for casual effect as well as impact assessment.

Suggestions were provided to refine some indicators, particularly disaggregating them further and/or making

them more specific to better reflect increased capacities of FOs and farmers. For example, focusing on

increases in sales to formal buyers other than WFP, rather than on sales to other buyers in general, focusing

on increases in access to formal credit sources, rather than increases in access to credit in general.

Suggestions were provided to refine some questions for the last round of data collection, to include for

example irrigation and conservation farming, as well as capturing climatic risk/shocks to interpret production

trends, or the FOs purchasing inputs in bulk for their members as an additional indicator of increased market

access capacity.

Page 4 ISSUE 55

Selected intermediate outcomes—FO Level:

Effects of P4P on participating FOs’ sales to

buyers other than WFP

Effects of P4P on participating FOs’ access to long

term storage

Effects of P4P on FOs’ planning for production

and marketing

Selected intermediate outcomes—Household

Level:

Effects of P4P on participating farmers’ use of

inputs (fertilizer, certified seeds) for maize

Effects of P4P on participating farmers’ maize

yields

Effects of P4P on participating farmers’ area

cultivated in maize

Effects of P4P on quantities of maize produced,

quantities of maize sold, and percentage sold

through the FOs

Effects of P4P on the Household Asset Score, a

proxy for income

With the importance of partnerships recognized as a

key pillar of P4P since its inception, the 2012 P4P

Consolidated Partnership Report demonstrates the

continued relevance of this facet of the pilot initiative

across the 20 pilot countries. There are 190 on-going

partnerships, with another 66 under negotiation and

112 completed. Government agencies and NGOs

account for almost 50 percent of all partnerships.

Most common type of support:

• technical support on agricultural production and

productivity;

• agri-business management, post-harvest handling;

• financial services and institutional capacity

building .

During the last quarter of 2012, a number of new

partnerships were formed, including:

Afghanistan: A new contract was signed with the

Agency for Technical Cooperation and

Development (ACTED), which will provide

training on good trading practices, proper storage,

cleaning and bagging of commodities to FOs in the

three Northern Provinces of Kunduz, Takhar and

Baghlan.

Honduras: For the first time, partnerships on the

implementation of farmer training schools were

concluded with two farmers’ organizations (FOs),

Unioyol and Fuente de Vida. The activities are

funded by the Howard G. Buffett Foundation and

aim to provide training in agricultural production and

post-harvest handling. During the last quarter, 132

farmer training schools were implemented by

partner organizations, reaching nearly 2,000 farmers.

Liberia: The Ministry of Agriculture and WFP

signed a Memorandum of Understanding for the

secondment of ten extension staff to P4P. The

extension workers will provide support to FOs in

organizational management, record keeping,

improved agronomic practices as well as methods to

improve aggregation and timely delivery of

contracted commodities.

Rwanda: P4P partnered with Rabo Bank

Foundation to conduct financial literacy training for

10 P4P-supported cooperatives. Discussions are

underway for a one-year joint project to build the

financial capacity of select cooperatives, with an

emphasis on financial management. Rabo Bank has

similar projects in Asia and Ivory Coast. Rwanda will

be the first country in East and Central Africa for

Rabo Bank Foundation to implement such a training

approach.

The Partnership Report can be found here.

ISSUE 55 Page 5

PAA Knowledge Sharing Workshop held in Senegal

The first Purchase from Africans for Africa (PAA Africa) Knowledge

Sharing Workshop, funded by DfID, took place in Dakar from 23 to 25 April

2013. PAA Africa is a Government of Brazil funded pilot initiative in three P4P

pilot countries (Ethiopia, Malawi and Mozambique) and two non-P4P pilot

countries (Niger and Senegal). With initial funding of US$5 million, PAA Africa

supports local food purchases from smallholders farmers by connecting them

to school feeding programmes, with supply side support provided by FAO.

Opened by the Prime Minster of Senegal, Abdoul Mbaye, this workshop

was an opportunity to discuss the progress of the pilot in each country and

identify challenges and opportunities. Discussions also took place on the

proposed outline for a second phase of PAA Africa, for which funding of US$4

million has been announced by the Government of Brazil. About 40 people

participated in the workshop, including representatives from WFP (P4P and

School Feeding) and FAO in Rome, WFP and FAO in the PAA Africa countries,

government partners and members of civil society in each country, Brazilian

experts and DfID. Areas of focus included strategic partnerships, support to farmers, support to the procurement

process and support to schools. Further information on PAA is available at http://paa-africa.org/

Partnerships Continue to be a Key Facet of P4P

Prime Minister of Senegal, Abdoul Mbaye.

Copyright PAA/Senegal.

Page 6 ISSUE 55

P4P Country Coordinators/Focal Points

Asia

Afghanistan: Djordje Vdovic <Djordje.Vdovic@wfp.org>

Regional Bureau Focal Point: Francois Buratto

<Francois.Buratto@wfp.org>

Eastern, Southern & Central Africa

Democratic Republic of Congo: Francis Bere

<Francis.Bere@wfp.org>

Ethiopia: Enrico Pausilli <Enrico.Pausilli@wfp.org>

Kenya: Martin Kabaluapa <Martin.Kabaluapa@wfp.org>

Malawi: Irene Del Rio <Irene.Del-Rio@wfp,org>

Mozambique: Ana Touza <Ana.Touza@wfp.org>

Rwanda: Emmanuela Mashayo <Emmanuela.Mashayo@wfp.org>

South Sudan: Marc Sauveur <Marc.Sauveur@wfp.org>

Tanzania: Marina Negroponte <Marina.Negroponte@wfp.org>

Uganda: Germain Akoubia <Germain.Akoubia@wfp.org>

Zambia: Aurore Rusiga <Aurore.Rusiga@wfp.org>

Regional Bureau Focal Point: Simon Denhere

<Simon.Denhere@wfp.org>

West Africa

Burkina Faso: Veronique Sainte-Luce <Veronique.Sainte-

Luce@wfp.org>

Ghana: Hassan Abdelrazig <Hassan.Abdelrazig@wfp.org>

Liberia: James Legg <James.Legg@wfp.org>

Mali: Isabelle Mballa <Isabelle.Mballa@wfp.org>

Sierra Leone: Miyuki Yamashita <Miyuki.Yamashita@wfp.org>

Regional Bureau Focal Point: Isabelle Mballa

<Isabelle.Mballa@wfp.org>

Latin American & Caribbean

El Salvador: Hebert Lopez <Hebert.Lopez@wfp.org>

Guatemala: Sheryl Schneider <Sheryl.Schneider@wfp.org>

Honduras: Lenin Gradiz <Lenin.Gradiz@wfp.org>

Nicaragua: Francisco Alvarado <Francisco.Alvarado@wfp.org>

Regional Bureau Focal Point: Marta Ortiz <Marta.Ortiz@wfp.org>

The update is published by the P4P Coordination Unit in Rome, Italy.

External: www.wfp.org/p4p Internal: http://go.wfp.org/web/purchaseforprogress

KEY P4P CONTACTS IN ROME

P4P COORDINATION UNIT

Ken Davies, Global P4P Coordinator:

Ken.Davies@wfp.org

Catherine Feeney, Snr Programme Adviser,

Communications & Partnerships:

Catherine.Feeney@wfp.org

Edouard Nizeyimana, Snr Programme Advisor for

Eastern and Southern Africa:

Edouard.Nizeyimana@wfp.org

Clare Mbizule, Programme Adviser, M&E:, Learning and

Sharing: Clare.Mbizule@wfp.org

Batamaka Some, Gender Consultant:

Batamaka.Some@wfp.org

Bhai Thapa, Finance Officer:

Bhai.Thapa@wfp.org

Lauren LePage, Communications and Advocacy

Consultant::

Lauren.LePage@wfp.org

Barbara Pfister, Reports Officer:

Barbara.Pfister@wfp.org

Judy Gicharu, Snr. Admin Assistant::

Judy.Gicharu@wfp.org

PROCUREMENT DIVISION

Shane Prigge, Food Technologist:

Shane.Prigge@wfp.org

Brigitte Labbe, Procurement Officer:

Brigitte.Labbe@wfp.org

LEGAL OFFICE Ariona Aubrey, Legal Officer:

Ariona.Aubrey@wfp.org

Calendar

Grow Africa Investment Forum: 8-9 May, Cape Town, South Africa

Global Child Nutrition Forum: 20-24 May, Costa do Sauipe, Brazil.

Annual Session of the WFP Executive Board: 3-7 June, Rome, Italy.

P4P Says Goodbye to Laura Melo

Laura Melo joined the P4P

Coordination Unit in Rome, in

2009. In 2010, she moved to

Panama to work as the Regional

Advisor for P4P in Latin America,

where she was particularly

focused on coordinating funding

from the Howard G. Buffett

Foundation. As part of WFP’s

regular reassignment exercise, Laura has been assigned

as WFP Country Director in Cuba.

P4P’s Experience of Working in a Post-Conflict Environment Shared in Washington DC Afghanistan P4P Country Coordinator, Djordje Vdovic, spoke at a Conflict and Development Strategy Workshop held over a 3 day period in late April in Washington DC. Organized by Texas A&M University, this was an opportunity to highlight P4P’s experience of working in a post-conflict environment under the theme Science, Technology, Food Security and Conflict. Mr. Vdovic presented his paper, Purchase for Progress (P4P) as a Conflict Mitigation Strategy, as part of a panel discussion. With participants from academia, USAID and the non-governmental sector, there was general agreement that increased agricultural productivity, with policies targeting smallholder farmers, offer a powerful instrument for economic growth and poverty reduction in post-conflict environments.

Post– Harvest Handling Training Manual Now Available in French Online and can be found here.

P4P Participates in the Lowlands Management

Forum The Lowlands Management Forum was held 23-24 April 2013

between WFP and the Japanese Ministry of Agriculture in Dakar,

Senegal. P4P West Africa Coordinator, Isabelle Mballa, gave a

presentation focussing on the links between P4P and the wider

market within the region. She spoke on P4P’s efforts to improve

the quality of production, and raise local quality standards, thereby

providing participating farmers a competitive edge in the

marketplace. The “Project Bas Fonds” (PBF), or Lowlands

Management Project, is a bilateral project between WFP and the

Government of Japan that helps communities reclaim unused land in

order to increase rice production in rural communities.