SDM analytics help to increase bankability of cashew farmers in Africa.
Over the past five years, IDH, in partnership with ComCashew, have supported the development of smallholder cashew farmers in Ivory Coast, Ghana, Burkina Faso, Benin, Mozambique and Kenya. During this period, roughly 550,000 smallholders trained under the ComCashew program have increased their yields by 100% and increased their annual revenue five-fold from USD 120 to USD 600.
The projects improved farmers cashew production practices and connected them to local processors. It also helped eligible processors set up systems to deliver trainings, finance and inputs to farmers (also known as service delivery models or SDMs).
By registering the service delivery and procurement in a traceability system developed by IDH, the participating processors were able to provide targeted support, where it’s needed, to the participating 34,000 smallholders, in Ivory Coast and Burkina Faso. This is opposed to a standard ‘one-size-fits-all’ service package delivered to all smallholders.
Using field level data collected on this project since 2012, IDH then mapped all services and products exchanged with the farmers and assessed their efficiency. This mapping supported the processors Olam and Anatrans in understanding how to transform their methods of service delivery to into competitive business units, generating profit for the company as well as the farmers receiving services.
According to Harm Voortman, Managing Director of Anatrans, a leading cashew processor in Burkina Faso: “The SDM analysis gave us deeper insights into the relationship between the costs and impact of our SDM. This enables us to improve the effectiveness and efficiency of our services, and makes it easier to communicate with our stakeholders and investors who support our smallholder engagement. Based on the analysis we are expanding the services we offer to farmers to plantation inputs and micro-credit loans that go beyond plantation maintenance.”
The SDM analysis also improved the bankability of the farmers and processors engaged, through profit and loss projections (see diagram). An SDM is a crucial stepping stone towards investment readiness for both processors and farmers. As the main client, trusted partner and service provider, Local processors are in a unique position to service the financing needs of smallholders. However, processors often lack access to appropriate risk capital with affordable interest rates. They also struggle to find partners in which to share the risk of investing with smallholders. Accurate profit and loss projections for farmers and the processors can help to build the business case for potential investors, reducing the perceived risk associated with investing in smallholder farming operations.
James Webb, Senior Manager Innovative Finance at IDH, said: “SDM analytics such as the ones conducted with Olam and Anatrans give us, and other investors, insights into the strengths and weaknesses of a company’s model of smallholder engagement. The analysis forms a strong basis for discussions about more sizeable investments. This can be both blended and commercial transactions.”
A commercial track record for individual farmers, combined with the available first-loss funding guarantee from IDH, means cashew smallholders have come a long way toward investment readiness since the project began in 2012.
In 2018, IDH will work together with its partner companies to secure the first investments in cashew smallholders from commercial banks or impact investors. In these partnerships, all parties (the financier, IDH and the cashew processors) will share the risk associated with lending to smallholders at affordable interest rates, that can be passed on to the farmers.
For more information on the cashew SDM analytic work see the summaries below.
A smallholder farmer working with Anatrans