1. Thematic Working Group -
Working with Lead Firms
Compilation of Cases On
Working With Lead Firms
Compiled by
IFC-SEDF
Dhaka
11 November 2008

2. ‘PARAGON POULTRY CARE LABORATORY’ CASE STUDY
Industry Overview: Poultry industry as an emerging agri-business started during the
eighties in Bangladesh. With the beginning of small scale layer and broiler farming in the
early 1990’s, the production stage has taken up the shape of an industry. In addition to
production and sale of day-old chicks, live chickens, eggs and poultry feed, large
companies in Bangladesh have also started to produce processed chicken meat and
further processed products. The industry has attracted investors’ attention and has made
notable changes in the last decade for commercial poultry production. As of 2005, the
private sector has invested about US $887 million into poultry industry
Bangladesh Poultry Industry: At A Glance 1
Total Investment (2005): US $887 million
Output Market: About US $1 billion (1.6% of GDP)
Employment Generation: 5 million (Direct and Indirect)
Women Employment: 25%
Livestock to Agriculture GDP: 16.42% [USD 1.98 billion]
Meat consumption/person/year: 3 kg/person/year; (Thailand – 14 kg)
Small Farm Size: 500-2000 Birds
Number of Farms: 150,000
Access to good quality laboratory services is one of the major constraints in the poultry
industry. This specific IFC-SEDF intervention facilitated improvement of laboratory
services that were being provided to small (500- 2000 birds) and medium farms
(including hatcheries) in the area. Gazipur is considered the ‘Poultry Capital’ of
Bangladesh having about ten thousand micro, small and medium farms in and around the
district. The Poultry Care Laboratory of Paragon Poultry Ltd. was established in Gazipur
district to provide technical back-stopping services to poultry units under the umbrella of
the Paragon Group. So even though the laboratory extended services to external
customers on commercial basis, the laboratory was indifferent to customers needs and the
customers were dissatisfied with the quality of services.
Discussions with Paragon and Poultry farmers led to IFC-SEDF assistance to improve the
existing diagnostic facilities and quality of services. The objective was to make it
technically competent and financially sustainable. It was identified that without
improvements in laboratory management, the technical services would not yield desired
results. The technical assistance followed a structured approach and started with an
analysis of the existing operations and management system. Active participation of the
top management at Paragon facilitated fast decision–making to translate
recommendations into actions. The firm received practical on-site advisory services 2
and four out of nine recommendations were immediately adopted.
1
Sources: Sub-sector and Value Chain Analysis of Poultry, IFC-SEDF 2005; National Avian Influenza (AI) Plan,
Government of Bangladesh, 2006
2
Example: Eight technologies transferred; 20 technical procedures generated; 18 technical guidelines generated; four
key staff provided practical on-the-job training
1/3

3. After the departure of the expert, the management took steps to develop a new business
strategy. The lab was established as a Strategic Business Unit (SBU) with clearly defined
responsibilities of the technical staff, investment outlays, and a marketing approach and
started to operate as a financially independent unit. The management expects that it will
be viable through extending quality services within the firm as well as to external clients.
The immediate results made the management more confident to undertake an initial
investment of BDT 1 million.
This investment and change in management system and attitude resulted in increased
revenue. The following table provides summary of revenue generated and compares the
before and after situation:
Paragon Poultry Care Lab, 2007
Indicator BDT US $
January – May (Monthly Average) 19,293 284
June – August (Monthly Average, Post TA) 40,083 589
Present Investment in Equipment (Post TA) 1,000,000 14,706
Future Estimated Investment in Improved Laboratory & Infrastructure (Planned) 2,000,000 29,412
IFC-SEDF assisted TA, together with better communication between the local poultry
association and Paragon, has spurred the management into looking at the laboratory as a
viable business unit. Paragon has committed further investment in equipment and human
resources. As the poultry industry in Bangladesh is moving to the next level and new
threats such as bird flu enhance the value of sound technical back up, specialized services
and providers will have a strategic importance in the value chain. The cooperation
between Paragon and IFC-SEDF is also proving to be a lesson for other lead firms having
similar operations.
Poor quality laboratory services is only one element of making small poultry farms more
sustainable. Other key issues such as poor but expensive feed nutrition, supply chain
inefficiency 3 are also impacting poultry farmers’ income and investments. To address
these issues IFC-SEDF partnered with large poultry companies such as suppliers of Day
Old Chicks and Poultry feed (lead firms). However significant challenges and
opportunities remain on the environmental and social development side. Large poultry
waste emerging from both small and large poultry farms is yet to be addressed. Similarly
no analysis has been done so far on employment conditions in small poultry farms.
This case study highlights that sub-sector analysis is key to identify what needs to be
done and who in the supply chain is best placed to transmit change alongside ongoing
market based interactions. This necessitates diversity of approaches, providers and
interventions. Not all interventions succeed and most triggers causing significant change
3
For example Enterprises selling Day Old Chicks and Poultry feed send technical staff to agents selling
these products to farmers. However there is absence of technical interaction between technical staff and
farmers and farmers are unable to feedback to supply companies.
2/3

4. seem very simple after the event (not rocket science). But in the context of poorly linked
supply chains, inadequate information and co-ordination failures, there are significant
market failures. These market failures present opportunities for leveraging a significant
development return on small timely investments by projects such as IFC-SEDF.
3/3

5. Lead Firms in the Value Chain: the Development of
a Globally Competitive Cashew Industry in
Mozambique
SEEP Network Annual Meeting
Role of Lead Firms in the Value Chain: Benefits to
Micro and Small Enterprises
October 28, 2005

6. THE HISTORY OF MOZAMBICAN CASHEW IS A WELL KNOWN AND RECENTLY
POSITIVE STORY
1920’s to 1974 1975 to 1994 1995 to 1998 1999 to 2001 2002 +
Growth Collapse Attempted recovery Relapse New growth
Raw nuts exported from
Mozambique
Raw nuts, period average, 000’s tons* Raw nuts processed in
**
55 Mozambique
**
175
6
51 21 42 62
26 12 3
• World’s leading • Production • Marxist policies • Abandonment of • Promising growth in
cashew nut producer collapses in the abandoned raw nut export medium scale
(240,000 t/year at space of a few • Civil war ended taxes, forced by decentralized
peak), years, due to: • New investment in World Bank leads processors through
• Portuguese-run –Exile of white processing to collapse of new entrepreneurs
plantations plantation technology, based uncompetitive • Little progress
owners, on large plants domestic being made in
• Considerable
technicians and and mechanical processing orchard
domestic processing
entrepreneurs processing industry regeneration
industry with
–Marxist policies technology • Continued lack of
reputation for quality
of fixed raw nut • Introduction of investment in tree
prices high export taxes planting and
–Dislocation of on raw nuts, to clearing
rural population, support domestic hamstrings raw
due to civil war processing cashew nut
• Raw nut export industry production
banned 2
* Significant differences in datasets examined exist although there is agreement on overall trends, ** 1973-1974 average only
Source: Cashew Week publications; ‘Developing the Cashew Nut Industry in Mozambique’ Report, INCAJU; FAO stat; ‘When Economic Reform Goes Wrong: Cashews in Mozambique’ McMillan, Harvard University

7. THE CASHEW MARKET IS DIVIDED INTO THREE STAGES: GROWING,
PROCESSING, AND CONSUMING
CASHEW MARKET OVERVIEW
Growing Processing Consuming
100%=1,470,000 100%=230,000 100%=230,000
tons raw nuts tons finished tons finished
kernels kernels
Other
India India
Market
Market
size/
size/
split
split US
Africa*
Vietnam
Brazil
Europe
Brazil
Vietnam
Other India
Mozambique Africa*
Other Africa* Brazil
• India processes the bulk of
• Mozambique produces only world cashew kernels, and • US and Europe are the main
Comments 3% of world cashew nuts, has to import raw nuts to single markets
Comments down from more than 20% in • Mozambican domestic
supply its factories
1972 • Mozambican processing is market is insignificant
• 90%+ of Mozambican nuts are insignificant (<1%) (<0.04%)
processed abroad
*Excluding Mozambique 3
Source: Indian Cashew Association, TechnoServe estimates; includes only traded nuts (excludes nuts processed/consumed at
village level)

8. TO REALIZE THE POTENTIAL FOR MOZAMBIQUE TO GROW, THE INDUSTRY MUST
OVERCOME SEVERAL CHALLENGES
Challenges to future growth Resulting priorities
and success for industry
• Raw nut factory gate prices rising due to 1. Ensure low total cost to
Shrinking exporter competition and increasing transport market
margins costs
• Raw nut export tariff protection (18%) likely to
fall eventually
• NGO support likely to be gradually reduced in 2. Secure future demand
recognition of industry success through reputation building
• Kernel price falls, especially short term,
possible due to increasing production and
market speculation
3. Expand production
• Global production expanding
Demand • Mozambique still relatively less attractive for
uncertainty buyers due to scale, quality and delivery
reliability
4. Encourage replanting
and quality nut production
• Many existing entrepreneurs appear to be
Capacity approaching effective capacity
limitations • Aging tree orchards means declining raw nut
supply and falling quality 5. Ensure national
significance of industry is
reflected in policy making
4
Source: Interviews, team analysis

9. THE POTENTIAL FOR A GLOBALLY COMPETITIVE CASHEW INDUSTRY IN
MOZAMBIQUE IS HIGH. IN 2002, TECHNOSERVE BEGAN WORKING WITH A LOCAL
ENTREPRENEUR TO DEVELOP SMALLER SCALE PROCESSING PLANTS
MOZAMBICAN CASHEW INDUSTRY – FUNDAMENTAL BELIEFS
Comments
• High US per capita consumption (250g per person per year) –
Excellent future
Excellent future strong catch-up potential for other markets, both EU, Asia and
prospects
prospects emerging economies
for cashew nuts
for cashew nuts
• Mozambican climate is excellent for cashew growing evidenced by
Mozambique has fact that 30 years ago Mozambique was the leading producer
Mozambique has
strong potential… • High availability of low cost labor
strong potential…
• The failures of the last 30 years can be ascribed to a combination of
…if approached in civil war, Marxism and inappropriate industrial policy (focus on large
…if approached in
the right way scale, expensive, but ineffective processing plants, lack of farmer
the right way
incentives)
• Currently, liberalized industrial and economic policy leaves the field
clear for new players
• Suggested approach is to use smaller scale processing plants with
technology and management appropriate to local conditions
5

10. THE HEART OF SMALL SCALE APPROACH IS A SIMPLE, 8-STEP MANUAL
CASHEW PROCESSING METHOD DEVELOPED BY TECHNOSERVE & MIRANDA
INDUSTRIAL. THIS PROCESS IS IMPLEMENTED IN RURAL AREAS – CLOSE TO
THE SOURCE OF RAW MATERIAL
Basic processing Post-processing
1.Calibration 2.Steaming 3.Air drying 4.Shelling 5. Oven 6. Peeling 7. Sorting 8. Packa-
drying ging
25 25
lbs lbs
50 lbs
• Raw nuts • Raw nuts • Steamed • Nuts are • Kernels • Kernels • Kernels are • Kernels are
Description are graded are
Description
nuts are cracked are oven- are sorted and CO2-
into steamed dried, to (shelled), dried peeled graded (size, flushed and
batches under high make to free the wholes, vacuum-
based on pressure shell kernel butts, white, packed in
nut size brittle and scor-ched) 25 lbs bags
easy to (2 to a
crack carton)
*Process is based on manual processing method used in Kerala, India [world’s leading cashew processor], but adapted to
Mozambican conditions 6
** 120 ton pilot plant example; total equipment cost is around $40.000, plus around $30.000 for necessary buildings
Source: Antonio Miranda, TechnoServe cashew client

11. SEVERAL KEYS TO SUCCESS WERE IDENTIFYING THE RIGHT
PROCESSING TECHNOLOGY AND ORGANIZING FOR COMPETITIVENESS
Advantage of smaller scale
Success factor Description methodology
1.Competitive
1.Competitive • Buy nuts at low but fair price • Placing smaller factories in rural areas
sourcing of quality
sourcing of quality (including transport costs) allows for shorter transport distances,
raw nuts
raw nuts • Buy best possible quality nuts and cuts out middlemen
• Large plants do not source raw nuts at
lower prices than smaller plants
• Push processing costs as low as • Low cost compared to mechanical
2. Low operating
2. Low operating possible - a function both of level of shelling
cost
cost salaries, and efficiency of workers –Effective manual shelling method
–Low labor cost in rural areas
–Well-managed operation
3. Low capital
3. Low capital • Push capital costs per kg. of • Smaller scale plant’s capital costs
cost
cost processed nut as low as possible - only 25% of large scale plant
a function of level of investment, • Smaller scale plants more likely to
capital efficiency and capacity achieve 100% utilization
utilization
• Profits are highly dependent on • Manual shelling has superior
4. High output
4. High output average sales prices - reliant on the quality to mechanical shelling, if
quality
quality proportion of valuable whole nuts in workers are properly trained and
the finished product incentivized
7
Source: TechnoServe, World Bank report on Mozambican cashew industry

12. EACH PROCESSING FACTORY CREATES MEASURABLE POSITIVE IMPACT FOR
EMPLOYEES, FARMERS, RURAL COMMUNITIES AND THE BROADER ECONOMY
Impact for community
Single factory: and economy
1000MT pa raw
nut capacity • Increased export earnings
Impact for smallholder • Essential infrastructure
farmers investment (e.g. roads, airstrip)
• Reliable direct procurement • Processor-funded projects (e.g.
Impact for employees from ~10,000 farmers schools, healthcare)
• 300 jobs created paying • Increased payment for quality • Employment creation for
>$15,000 in salaries per month raw nuts (exporters mix quality support services (construction,
and underpay for good nuts) maintenance, transport etc)
• ~35% female labor force
• Extension program • Stimulus to community
• Employment conditions include: –Provision of seedlings from economy, secondary effects
–Minimum wage salary processor-owned nursery farm
–1 month paid holiday –Farm management training • Reducing HIV/AIDS risk from
–All insurance, health and –Input supply at reduced cost employment-driven migration
pension entitlements
–1 meal per day • Additional industry creation for
–Child care facility by-products (e.g. CNSL
processing)
TechnoServe, CLUSA, and ACDI/VOCA are implementing
USAID’s Emprenda program in Mozambique to drive
development of supporting industries, improve coordination of 8
stakeholders, and build local capacity to carry this forward

13. “LEAD” FIRM -- TECHNOSERVE ASSISTED AN ENTREPRENUER TO LAUNCH A SINGLE PILOT
PLANT
TechnoServe and partners helped
• In 2001, Antonio Miranda, a by:
Mozambican entrepreneur,
• Assessing global performance
piloted a small-scale, manual,
benchmarks and developing initial
rurally located processing plant
business plan
• In 2004, he opened a second
• Providing world class advice
1,000-ton factory – with revenues
focusing on processing productivity
over $1 million
and quality
• In 2004, we worked with 11 other
• Creating links to producers and
Antonio Miranda entrepreneurs – trained by
supporting raw nut quality
Miranda – totalling more than
Entrepreneur’s qualities: improvement
7,000 tons of processing
• Innovative capacity. Over 1,800 processing
• Visionary • Creating links to export markets
jobs created in areas with little
• Thrifty formal employment.
• Socially conscious • Assisting in raising investment and
working capital
• Producers are paid premiums up
to 60% over that paid by traders
• Identifying additional entrepreneurs
• In 2005 the firms will purchase
almost $3 million in raw material,
from 80,000 small-scale farmers
9

14. HAVING STARTED WITH A SINGLE ENTREPRENEUR, TECHNOSERVE NOW
WORKS WITH 11, WHO ARE EXPECTED TO PURCHASE FROM 80,000
SMALLHOLDER PRODUCERS THIS YEAR
IMPACT OF GROWTH OF CASHEW PROCESSING ON SMALLHOLDER PRODUCERS
# of smallholder producers Value of purchases from smallholders
• Each family sells between 80-
2003 9530 $ 574,000
100 kg of raw cashews
• Average payment per family is
$40
2004 41,800 $ 1.4 Million • Additional extension services
(such as assistance with
replanting cashew trees,
groundnut production) to be
2005 79,800 $ 2.8 Million offered by processors
2006 111,500 $ 3.9 Million
2007 146,000 $ 5.1 Million
Source: TechnoServe client data and projections 10

15. CASHEW PROCESSING IS ALSO BECOMING A SIGNIFICANT GENERATOR OF
EMPLOYMENT IN RURAL MOZAMBIQUE. IN 2003-4, 11 NEW CASHEW
PROCESSORS CREATED 1,800 JOBS IN NORTHERN MOZAMBIQUE…
“I really like working, and I really
like working here. Now I have
money to feed and educate the
children.”
“I’m very satisfied with the working
conditions here.”
“Many people cried because there
weren’t enough positions at the
factory for them to get a job”.*
“I want the factory to grow really
big.”
“Maybe one day we can have a
hospital and a daycare center.”
Atija Soalahe, 33 years old, widow, 6 children, factory worker at Miranda Industrial
*Over 1,000 local residents applied for the first 70 positions at Miranda Industrial’s factory
11

16. CRITICAL TO THE SUSTAINABILITY AND SUCCESS OF MOZAMBIQUE’S CASHEW
PROCESSORS IS A NEW HOLDING COMPANY: ASSOCIATION OF AGRIBUSINESS
INDUSTRIES (AIA), ANOTHER “LEAD” FIRM
• A private holding company (not an
association) formed by leading cashew
processors (TechnoServe clients) in
Mozambique
• The primary marketer of kernel for its
members
• Acts as quality control agent (HACCP,
EurepGap) with a “three strikes and
you’re out” system
TechnoServe is assisting AIA to build • Provides training (and other technical
its capacity so that it replaces assistance) to members
TechnoServe as the major industry
service provider within three years • Currently in the process of launching a
new brand – Zambique – to
communicate the superior quality of
Mozambican kernel
12
• Coordinating industry to increase

17. WE ARE APPLYING THE LESSONS LEARNED IN OTHER GEOGRAPHIES
AND SECTORS…
Application of approach in other
Cashew consequences value adding sectors with growth
potential
• Mozambique: • Coffee – milling and marketing
(Tanzania)
– 11 processors operating
• Dairy – bulk cooling and processing
– Entrepreneur owned service
(Kenya)
company launched
• Horticulture – quality production,
– Capacity to process >25% of
packing, processing, wholesaling and
country’s raw nuts
distribution (Ghana, Kenya, Uganda,
• Partnership with Olam (through a Mozambique, South Africa)
GDA) to develop processing across
• Field crops (maize, cassava, sorghum,
Sub-Saharan Africa
sunflower) – food processing, pre-
• Application of lessons learned processing of inputs into other value
underway in Tanzania, Kenya, South chains (Ghana, Mozambique)
Africa, Benin
• Poultry – feed preparation, broiler
• Active exploration in rest of W. Africa processing (Mozambique)
13
Source: TechnoServe analysis

18. …SO THAT AFRICA CAN BECOME A LEADING PLAYER IN THE GLOBAL CASHEW
INDUSTRY AND OTHER INDUSTRIES AS WELL
14

19. Working with Lead Firms through Public, Private Partnerships
September, 2008
One of the tools which GTZ uses to work with lead firms in different sectors is establishing
public, private partnerships (PPPs).
When companies setup production units or outsource production facilities abroad or develop
business relations, they often work on topics which are also important for development policy.
Examples include introducing environment-friendly technologies, caring for security and health
at the workplace, or establishing vocational training centers. In doing so, however, they
sometimes encounter obstacles, which might be overcome more easily with the support of an
experienced partner. This is why the German Federal Ministry of Economic Cooperation and
Development (BMZ) initiated its Public-Private Partnership Programme (PPP) in 1999
implemented by GTZ.
Mutual Benefits
PPP cooperation arrangements serve the interests of both parties. For GTZ, focus is placed on
development-policy objectives. The benefits for our corporate partners include:
• GTZ offers valuable expertise and contacts in about 130 countries resulting from 30 years of
international cooperation.
• GTZ can facilitate access to public and private institutions as well as to decision-makers.
GTZ is experienced in managing complex processes - especially under politically and
economically difficult circumstances.
• PPP projects can improve the framework for entrepreneurial success and minimize risks for
investment.
PPP – How does it work?
PPP projects between GTZ and the private sector are jointly planned, financed and
implemented. Four criteria must be met:
1. The projects must have solid economic and developmental objectives, making a tangible
contribution in the partner country.
2. The scope of the project must extend beyond the company's core business, as PPP
contributions are not subsidies.
3. The private partner must bear a significant proportion of the project costs, generally at least
50 per cent.
4. The project must be in line with the basic principles of German government development
policy.
GTZ executes PPP projects around the globe: from Mexico City to Manila, from St. Petersburg
to Pretoria. Commonly, GTZ's partners are small and medium sized enterprises as well as
multinational corporations. PPP projects range from vocational training to environmental
protection, the development and implementation of standards and new technologies. Promising
partnerships are possible in many ways - what matters is an innovative idea. Most successful
are PPPs when linked with local entrepreneurs and bilateral technical cooperation projects in
developing countries. In this case, the private sector can benefit directly from governmental
agreements between Germany and its partner countries. Especially interesting are strategic
alliances with several companies (cluster approach), business associations and chambers.
1

20. PPPs in Bangladesh
1. Social Compliance
Background
Tchibo is one of the major German retailers who are operating retail stores in Europe. In order
to reduce production costs, most retailers have outsourced their production to developing
countries. Tchibo is no exception. Currently, Tchibo is sourcing from wide range countries
around the world. There is always skepticism from different interest groups regarding the
working conditions in such countries where the European and American brands source from.
Nowadays, consumers are also becoming very aware of where and how their purchased items
are being manufactured. In order to address these concerns, Tchibo took the initiative to be
proactive and work with their suppliers on improving working conditions in their global supply
chain. To implement this initiative, Tchibo teamed up with GTZ in a public private partnership
project. This project is taking place in three Asian countries where Tchibo is currently sourcing
from. The time frame of the project is three years (2008 to 2010). One of these countries is
Bangladesh. In Bangladesh, Tchibo, in partnership with GTZ, is working with 10 readymade
garments manufacturers and several service providers.
Objectives
The two main objectives are to:
- Improve the social compliance status, productivity aspects and quality issues in the ten
participating factories, and
- capacitate private consultants, consulting firms and public training institutes with the aim to
deliver better services to the readymade garments sector in the field of social compliance.
Approach
The project is jointly planned and implemented by Tchibo and GTZ.
GTZ’s contribution to this partnership is to:
• Provide technical expertise such as the training curricula, materials and trainers
• Manage the project in the implementing countries
• Monitor the impact of the project activities
Tchibo’s responsibilities include:
• Financial contributions for the project implementation
• Nomination and access to suppliers to implement project activities
• Sharing project management and monitoring responsibilities with GTZ
Achievements
Major results realised during the past six months since the start of the project in April 2008 are:
- Establishment of a joint project vision, mission and understanding regarding project
objectives, strategies and roles and responsibilities of each party involved
- Availability of baseline data about: (i) current social compliance status in the participating
factories and (ii) capacity of local service providers offering social compliance services
- A better understanding among about 100 mid-level factory managers and workers
regarding social compliance in general and better relationships and communication
between workers and managers, in particular.
2

21. 2. Solar Home Systems (SHS)
Background
A crucial point for the acceptance and dissemination of solar home systems (SHS) in majority of
the least developed countries, such as Bangladesh, are the costs for purchase and
maintenance of the SHS, as well as availability of maintenance services. The quality of the
products, especially of the charge controllers in the SHS, as well as the correct handling of the
SHS by the users, has an important influence on the lifespan of the systems. Cost reduction and
with that a wider use of the technology can be gained by a prolongation of the systems’ lifespan
as well as through local production which meets certain quality standards.
In order to address these quality and maintenance issues of SHS especially related to locally
produced components, such as, charge controllers, light emitting diodes, CFL, photovoltaic
panels and batteries, a PPP was initiated in 2006 and implemented for three years comprising
of the four following parties:
• Phocos AG: A German company who are one of the leading manufacturers of components
for photovoltaic solar systems.
• Grameen Shakti: A local company which belong to the Grameen enterprise family. The
company supplies solar home systems and biogas plants particularly in the regions of
Bangladesh where conventional power grids are not expected to be set up within the near
future.
• Bangladesh University of Engineering and Technology (BUET): The largest engineering
university in Bangladesh.
• GTZ through its project titled “Promotion of the Use of Renewable Energies (PURE)”
Objectives
The overall objective of the PPP was to ensure that a pool of trained personnel is able to
provide improved quality for locally manufactured products and servicing of renewable energy
technologies (RET) in Bangladesh, in particular solar lighting equipment. One sub-objective was
to establish a quality management system, as a pilot project, in a local production facility for
solar systems, following the ISO 9000 standard.
Approach
Capacity development activities comprised of training of the personnel from BUET, Grameen
Shakti and other Bangladeshi consultancy firms, on manufacturing and maintenance skills of
SHS components and also in the application of ISO 9000 standards into their work processes.
All the training curriculum, material and processes were documented in a handbook and made
available through the training courses which were established at BUET. GTZ assisted with the
preparation, coordination and impact monitoring of the training measures. Phocos AG
contributed by providing technical expertise and financial inputs as well as developing all the
training tool kits and materials.
Achievements
After three years, the project was successfully completed and achieved the two main results
which are as follows:
• Improved services regarding SHS manufacturing and maintenance offered by a pool of 15
master trainers and three organisations equipped with quality training material comprising
training tool kits and handbooks on quality management systems, and
3

22. • Increased quality of SHS components manufactured in Bangladesh by setting up a model,
at Grameen Shakti, for an ISO 9000 compliant quality management system and through the
installation of two testing machines at BUET and Grameen Shakti.
4

23. A CASE STUDY:
Lead Organization: International Development Enterprises (IDE)
Project Name: Agriculture Input Service Delivery Project (AISD)
Project Length: 2007 – 2008 (First phase was Nov. 05 to Dec. 06)
Donor: Swisscontact-Katalyst
Coverage: Bogra, Joypurhat and Sirajgonj districts
Contact: William J. Collis, Country Director: wjcollis@ide-bangladesg.org
Shyam Sundar Saha, Program Director: shyam@ide-bangladesh.org
IDE–Katalyst funded Agriculture Input Service Delivery (AISD) Project began on November 2005 with the aim to
promote business solutions in the agriculture input (seed) and poultry sectors. The components, operating separately,
both use BDS approaches to build private sector capacity to reach small and medium sized entrepreneurs in the poultry
and seed sectors. Target is 25,400 farmers and 870 Business Development Service providers or families increased their
annual income by an average 15-20% as a result of project activities by 2008. Beside, two specific objectives are to: a)
improve the agricultural inputs delivery system and services for the farmers and b) improve the competitiveness of
poultry sub-sector and its actors. AISD used a combination of research, advocacy, facilitation, and capacity building
approaches to develop sustainable interventions to improve the agriculture
Challenges and experiences:
input delivery system and poultry service market. AISD is assisting In the beginning the lead company was
smallholders to improve access to relevant inputs and services (horticulture lesser interest due to their promotional
and poultry) through strengthening the capacity of poultry and vegetable strategies. The company bears different sets
of fixed promotional strategies and limited
input service providers.
resources which limit them to take such
interventions. They need additional cost,
One of the major strategies was to work with private sector lead companies skilled human resources, and time; less
and make them a sustainable source of services for the input sellers and aware on corporate social responsibility and
sustainable impact of services. IDE’s
householder farmers. In the light of market constraint and study findings,
initiatives, marketing approaches assured
AISD worked with the lead companies to facilitated services for the target them to be part to promote business services
clients. Major problem faced by the farmers in agriculture input markets as to the farmers to create permanent business
found by the assessment study were: poor seed quality, lack of production relationship and trustworthiness among the
information and related risk factors from seed sources, lack of knowledge on clients which will contribute in business
growth, and it happened.
proper cultivation practice; constraint for poultry input market were: high
feed conversion ratio (FCR), lack of management practices, high mortality; production cost, limited farmers’
knowledge on commercial farm management, Service providers(Paravets, lead farmers and input retailers) lack
technical skills and limited coordination among the members of existing poultry farm owner association.
To address those problems- by the joint effort of IDE and the private lead companies
(Novartise, Intervet, Navan, Eskayef Pharmaceuticals, Laleer Seeds Ltd., Supreme
Seeds Limited, and Dynamic Agro Science Ltd) facilitated technical assistances and
business services to strengthened the capacity of poultry farmers associations, trained
and build up capacity of Health Care Service Providers, poultry & agriculture input
retailers and, Mobile Seed Sellers. Set several seed demonstrations, established
information resources centers at association level so that farmer can access to
information. Developed linkages with local and forward market traders to procure
inputs and selling products. A total of 231 unions of 29 upazillas have been covered as of September 2008 by the
project interventions. As of end September 2008, about 32,000 households are being severed by more than 800 AISD
trained service providers (seed sellers, soil testing entrepreneurs, lead poultry farmers, poultry service
providers/paravets, poultry de-beakers, poultry input sellers) available in the value chain.
Inputs company now bearing a positive attitude to provide right and quality information to the farmers to face market
competitiveness. Farmers feel comfortable to contact with service providers to get services when they are in need and
they know the alternatives. Facilitating services, company got sales growth, accessed to remote and new market,
established product and quality image in the target markets. Now the lead companies are treating the services as part of
corporate social responsibility and a copping strategy to sustain in the market.
An impact monitoring survey revealed that the project contributed in increasing income by 26%
for vegetable farmers, 18% for mobile seed sellers, 15% for seed retailers, 25% for dealers, 11 %
for poultry farmers and 63% for poultry service providers (paravets). Vegetable production cost
reduced by 3-5% due to increased use of quality seeds and production increased by 10-15%. In
case of poultry, production cost reduced by about 5%, medicine cost by 30% and reduced
mortality by about 5%, the FCR has reduced from average 2.81 to 1.50 and average broiler
production has increased by 20%. AISD initiatives boosted market competitiveness, created
service demand among the farmers and also prepared the service markets for better market system.

24. Case on Lead Firm in Developing Dairy Value Chain in Bangladesh
The "Strengthening the Dairy Value Chain in Bangladesh" is a project of CARE Bangladesh
which will be implemented in 9 districts of North and Northwest of Bangladesh for a period of 4
years (2007-2011). The project design is based on investment from the private sector and
development of profit-driven infrastructure, making it sustainable. The vision of success is that
targeted landless and smallholding households in North and Northwest Bangladesh have more
sustainable livelihoods through incorporation into a strengthened milk value chain. The core
objective is to eliminate existing bottlenecks and establish a value chain where all stakeholders
(e.g. from producer to final consumer and people who are directly and indirectly related to the
chain) will be benefited.
In Bangladesh the production of milk is very low and can barely meet local demand. In addition,
the production cost is very high compared to other countries. It’s quite impossible to export with
this limited amount of milk after trying to cater to local needs. Average milk production per cow
is very low (0.75 liters according to the dairy value chain study carried out by the project). Lack
of producers’ knowledge and information regarding animal health and nutrition is the major
factor impeding upon productivity. That is why increasing milk production and developing a
dynamic milk collection system in rural and remote areas are primary objectives of the project.
Furthermore, producers do not have sufficient produce- in volume and in quality to attract the
formal sector and are not organized into groups to take advantage of market opportunities. Price
incentive is based on fat content of milk whereas there is very limited example where small
scale producers get direct fat based price from the formal sector who are the only users of
digital milk tester in the dairy sector. Poor understanding of business principles and lack of
information have been largely constraining small scale producers’ productivity, growth and
strong formal sector development. Therefore the project is providing appropriate awareness to
producers and also to motivate the formal sector to actively participate in the value chain
development process. The project has been successful in promoting the fact that both
producers and the formal dairy sector have much to gain from higher milk production and a
skilled workforce.
“We do not get good prices for the milk”, is a complaint that most of the producers made
whenever they were asked about the constraints they were facing with their dairy venture. The
problem contributes significantly to disincentives for producers to increase production. With this
in mind, the project has designed interventions with the view to ensuring best available selling
prices for producers from amongst existing market opportunities. CARE is also designing future
program interventions in the fields of raising awareness, increasing productivity and livestock
service development in rural and remote areas.
To ensure competitive market price for producers the project is now facilitating the development
of milk collection models together with the formal sector lead firms. There are existing chilling
plants in the project area owned by formal sector lead firms, but both formal and informal milk
processors have poor integration with small scale producers. Operating on average at only 10-
20% capacity, 37 chilling plants are within the project area, all of which are owned by leading
private sector processors with many scheduled to be established soon. Integration of
processors with the producers is largely absent. At many locations producers are not even sure
which processor they are selling their milk to, since they tend to interact only with the collectors.
From a processor point of view, organizing producer groups with such low volume only adds
more transaction costs to their business operations. On the other hand the processors also
pointed out that this procurement system also results in acquisition of poor quality of milk,

25. because most of what they are getting at the chilling plant gates is of the same poor quality. To
address this significant constraint, drawing the progress of the chain backwards, the project has
developed a workable milk collection model with the private sector lead firms, to increase quality
milk production and ensure services for producers.
In rural areas where producers are located more than a kilometer away from the formal or
informal milk market, the collectors play the most important connecting role between producers
and the informal / traditional market value chain. Collectors however, are careless in procuring
milk from producers and therefore maintain low product flow. The project has focused on
building informed and efficient producer groups and collectors who will understand the quality
and quantity of milk lead firms demand. Firms like BRAC, Milk Vita, Rangpur Dairy and PRAN
have already contributed to designing the model around producer groups- CARE is playing the
leading role in facilitation. The lead firms are also motivated to provide more support and
services once producer groups start to sell quality milk to each firm. In project areas, collectors
create misunderstanding between processors and producers by misrepresenting facts. This
poses even more of a challenge for formal sector processors who are tied to buy quality milk (at
Figure 1: Lead Firm Approach in Developing Dairy Value
IMPACTS: Lead Firm IMPACTS:
- Lead firm is willing to offer more - Lead firm develop horizontal linkage for
services if group continues volume of milk aggregation &information
milk with quality dissemination.
- Lead firm will introduce BSTI Collection - Lead firm will provide milk can, lactometer,
Direct
(Bangladesh Standard & Testing Point interest free loan to producer group
Institution) approved milk measurement - Lead firm will provide competitive price
pot. with bonus, feed & fodder, veterinary
- Lead firm will develop improved milk service and other facilities to the producer.
transportation system. Collectors - They will also monitor to ensure fat
- Lead firm will provide information on Existing/New testing, pricing, bonus and other facilities
price, quality, farm management and - They will introduce digital fat testing
health and medicine services. machine if milk collection reached 200 liters
- Lead firm will arrange awareness - Lead firm is placing the collection system
session for both collectors and near the group or community. It will
producers to increase milk production. increase the transportation cost of the lead
- Lead firm will arrange training for their firm but will provide them long term benefit
staffs to work effectively with value by getting quality and continuous supply.
chain actors.
Producer Producer
Expansion
Expansion
Group Group
Group
Group
30 members Horizontal 30 members
Integration
Service Providers
Livestock Officers Feed & Fodder Artificial Medicine
Para-vets Supplier Inseminator Suppliers
Project has already facilitated
Facilitation is in process
least with 3.5 percentage fat) to meet market standards, whereas the informal sector players do
not.

26. Under such conditions the project is progressing towards leveraging existing collection systems
where they are comparatively robust and effective and where the opportunity exists to
strengthen and formalize collectors, while increasing the transparency of transactions between
lead firms, collectors and milk producers. Project field staffs have been active in mobilizing
collectors and teaching them business principles and ethics, and mutually beneficial ways of
increasing profit while collecting milk from small scale producers- acquiring more milk in the
process. (Collectors get Tk. 1 bonus for each liter of milk they supply to processors and extra
bonus based on volume). Where there are uncompromising collectors, the producer groups are
motivated to select and function through their own collectors. These decisions are made on an
ad-hoc basis by producer groups and hinge on the local situation. As of now, initial sets of
beneficiary groups have been formed; confidence and trust of processors have been gained;
and the project is working further on the model with lead firms.
Identified advantages, challenges & opportunities in the model:
Advantages:
Small scale producers are getting appropriate price for their milk.
Direct contact between producers, collectors and lead firms established.
Producers get updated information on quality product, price, feed & fodder, health care
and services provided by lead firms.
Lead firms are getting quality milk as they desired.
Lead firms are well informed on current market situation.
Accountability within the actors has been established.
Tendency of milk adulteration has decreased.
More business opportunities has been created for feed and fodder supplier, medicine
supplier, artificial insemination and etc.
Producers are now more interested on rearing cattle.
Challenges:
In some instances, lead firms involvement and transparency is limited, which produce
distrust among producers, collectors and processors.
Difficulty in creating a commercially viable milk transport system
Resistance from traditional milk collectors
Milk yields and quality improvements are largely constrained by unavailability and high
costs of appropriate feed and lack of producer awareness on improved feed/fodder
practices.
Many paravet training modules have been produced by different non governmental
organizations, but there is no single accepted version that might be adopted widely by
various stakeholders.
Lead firms fall back on management capacity
Lead firms unable to make a profit from their existing chilling plants due to low milk
volumes
Short-sightedness of entrepreneurs seeking quick payoffs rather than long-term
investments.

27. Opportunities:
Small scale producers (SSPs), collectors and processors are directly linked to efficient
collection mechanisms.
Milk collection to be faster than before.
Possibilities of spoilage and adulteration will diminish.
Bring private investors together with financing institutions.
Build relationships and clarify expectations between value chain actors.
Develop marketing, collective bargaining, and leadership skills.
M&E framework for the approach:
Care SDVC project staff will implement the following M&E System (Figure 2). Lead firms will
provide all relevant support in this regard. Staff will work closely with lead firms and at the same
time advocate between producers and collectors to produce and transport quality milk. There
will be in effect, a monthly and quarterly monitoring reporting system, in a given format, for the
monitoring team. The monitoring framework for the lead firm model is given bellow.
Figure 2: M&E framework for the approach
Producer Collector Group Paravet Others Action SDVC Inputs
M&E System & Reporting Diagram
FF FF-Vet FF FF-Vet Team Team
Team Mgt
Monthly Team Report (Formative)
Regional Mgt.
Group UDVCSF Case Observation Farm Others
Register Meeting Study Checklist Record
Minutes
3 MONTHS COMPILATION
PO-MRD
PO, FF-V
FF, FF-V
PO, TO,
Others
Team,
FF
FF
3 Month Compilation of Team Report Quarterly Monitoring Report
(Quantitative) (Quantitative & Qualitative)
FF-V= Field Facilitator Vet, PO=Project Officer, TO= Technical Officer, MRD=Market Research & Development, UDVCSF= Upazila Dairy Value Chain Strengthening Forum

28. UPTOP
Uganda Programme for Trade Opportunities and Policy
Case studies of lead firm governance systems in the context of
commercialization of smallholder agriculture in Uganda
By Jörg Wiegratz, Paschal Nyabuntu, and Charles Omagor
INTERNET VERSION OF THE FOLLOWING REPORT PART:
‘SUMMARY AND DISCUSSION OF MAIN FINDINGS’
This study was commissioned by the Uganda Programme for Trade Opportunities and Policy (UPTOP) with funds
from the European Union (EU).
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29. About the researchers
Nyabuntu P. is an Agricultural Economist (Makerere University, Wye College - UK). His field of
academic specialisation is farm planning/business management and agricultural trade policy. He
has wide experience of Uganda’s agricultural sector and has provided services to USAID, ILO,
DFID and EU funded projects as well as international and local N GOs. His major interests are in
agricultural enterprise development, value chains and market linkages for smallholder farmers.
Assignments have included issues of enterprise identification and profitability, monitoring and
evaluation of agricultural projects, development of BDS for smallholder enterprises, value chain
design and analysis, sub-sector analysis, trade liberalization, and training of trainers. He was a
researcher of the team’s earlier UPTOP study on Global Value Chains. In the present report, he was
the researcher responsible for the Ibero case study and contributed to the summary. E-mail:
pnyabuntu@yahoo.com.
Omagor C. is a Senior Lecturer in the Department of Marketing and Procurement, Makerere
University Business School (MUBS). He is a Marketing specialist (Makerere University,
University of Lancaster - UK). At MUBS, he has facilitated the MBA programmes in the fields of
marketing and management. His research interests include: business growth, value chains, network
marketing, and spiritualism in business. He has carried out assignments for, among others, Uganda
Management Institute (DFID funding) and the Uganda Veterinary Association (EU). He also
conducts training courses in marketing and management for members of the Uganda Manufacturers
Association. He was a researcher of the team’s earlier study. In the current report he was
responsible for the Outspan case study and contributed to the summary. E-mail:
comagor@yahoo.com.
Wiegratz J. researches matters of value chains, competitiveness, political economy and human
resource development (HRD). He is an Economist (University of Cologne - Germany) and Political
Scientist (University of Warwick - UK). He has worked as a consultant and researcher for the
Government of Uganda (UPTOP, Ministry of Tourism, Trade and Industry), UNIDO, and the GTZ.
He is a Research Associate with the Economic Policy Research Centre (EPRC) and a part-time
lecturer with Makerere University (Faculty of Economics and Management) and Makerere
University Business School (Department of Marketing and International Business). He was the lead
researcher of the Global Value Chain study. In the present study, he was the lead researcher with
overall responsibility for the project. He wrote the introductory and summarizing sections of the
report and undertook the case studies of Bee Natural Products, Sulmafoods and Jesa. Since October
2007, he is a PhD Researcher at the University of Sheffield (Department of P olitics) where he
continues his work on value chains in Uganda. E-mail: J.Wiegratz@sheffield.ac.uk.
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30. Acknowledgement
Thanks are due to the following: The main funding partner UPTOP (the entire tea m and especially
Dr. Lindani Ndlovu and Steven Kamukama) for the financial and technical support and the MTTI
for its overall support in carrying out the research. The Economic Policy Research Centre for its
logistical support. David Opero (Makerere University) for his work as a Research Assistant. Rose
Nakayi (Makerere University), Ruth Achimo Etibot (Gulu University) and Robert Ayine (Gulu
University) for providing services as Research Assistants during interviews with farmer groups
(conducting interviews in local language when required). Betty A.K.Businge, and Rose Nakayi for
typesetting, and text editing respectively. Rose Nakayi for her personal support. Furthermore, we
are very grateful for the immense inputs and comments provided by all respondents. F inally, we
thank numerous colleagues for their support.
Note
This report has been produced under the UPTOP research pillar (competitive research grant
competition). The core working period was about seven months (March-September 2007). The key
findings of the report have been disseminated to stakeholders in Kampala in September; the full
report of 416pp. was handed over to UPTOP at the end of October. About 500 copies of the report
will be distributed by UPTOP at the beginning of 2008. The researchers currently try to find
funding for a related book publication in 2008 to allow for wider distribution, among others. Note
this internet version of the report summary is a slightly improved version compared to the one in
the original UPTOP report; improvements were made mainly in terms of expression (clarity of the
writing); no major new analytical content has been introduced. However, we have added a brief
section on methodology which is in the main text in the printed report. Finally, as readers please
keep in mind that the UPTOP report (and this summary of it) is an effort to begin to discuss the
vast interview material and other information we got from the field research. Follow up analysis is
actually required to explore certain issues in more depth, apply additional analytical perspectives,
where required, and so on. At times we can only highlight in the report issues emerging from the
interviews but not explore them further. This is also related to the concern of our funding partner
with report size and the normal limitations of the main analytical approach applied in the study.
The usual disclaimers apply. If you as a reader identify any mistakes or have any comments we
would be pleased to receive feedback.
Copyright © 2007 Authors
All rights reserved. No part of this publication may be reproduced, in any form or by any means,
without permission from the authors.
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31. Summary and discussion of main findings
Introduction
The study is set in the context of: (a) overall weak farmer-buyer relations in most parts of
Uganda’s agro-sector which affect the development prospects of small holder farmers (SHFs) 1 ,
and (b) a growing interest by the private and public sector, including the Government of
Uganda (GOU) and development agencies in the contribution of value chain (VC) analysis and
support interventions to economic development in the country. This study analyzes the
governance of domestic value chains (DVCs) in the agricultural sector in Uganda. It
focuses at exploring how agricultural produce buyers set up, coord inate and monitor - that is
govern - the DVCs with their supplying farmers. Particularly how buyers govern the latter’s
activities and performance and thus the division of labour in the DVC. Governance in this
context constitutes for instance: (i) setting the requirements for farmers in terms of product
quantity, quality and delivery, or production processes, (ii) monitoring compliance, and (iii)
assisting farmers to meet the set requirements. This study focuses on such governance systems
of various buyers which operate a DVC with SHFs. The buyers are called lead firms (LFs) of
the DVC. The research was concerned with: the rationale and functioning of the business
relation between the LF and SHFs, related benefits and costs as well as lessons- learnt, farmers’
upgrading as well as opportunities and challenges which will have to be addressed by the VC
actors or call for assistance from for instance GOU and respective support institutions.
Research methodology
The study explores five case studies: Bee Natural Products (BNP - honey), Sulmafoods (SF -
fruits and vegetables), Outspan (OS - sesame and chilli), Ibero (IB - coffee), and Jesa (JE -
dairy products). All cases are selected from the agricultural sector. Depending on the sub-
sector, the LFs interviewed are processors or traders who sell their products on domestic and/or
international markets. The main selection criterion for LFs to be included in the study was that
the LF was known to engage directly with SHFs and in a more long-term and developmental
manner which could include provision of training, advice, pre-finance, or inputs.
The study is based on presentation and analysis of in-depth interviews with LFs and SHFs as
well as support institutions and industries (SIs/SIDs) that interacted with the LFs and SHFs and
thus - in some way - carried out governance functions in the DVC. SIs are non-commercial
players such as government and donor agencies/programmes and NGOs. SIDs are commercial
1
We use the terms SHFs and farmers interchangeably.
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32. partners of the LFs and SHFs and e.g. supply some of the inputs used by SHFs. At times, this
supply comes along with embedded services such as product specific or general training and
advice. Interviews were conducted using a questionnaire which was developed by the
researchers. 2 Qualitative field research by a team which consisted of researchers and research
assistants was carried out between the months of April to August 2007. LFs’ interviews were
held with the LFs’ management (managing directors, general managers, owners) and/or field
coordinators (operations managers, farm managers, purchase managers, field supervisors). For
each case study, interviews were also held with two to four farmer groups of between 3-15
people, and three to four SIs/SIDs. 3
The main purpose of the interviews was: (a) to understand the governance structures in place
between the two VC actors involved in the actual trade (LFs and farmers) and (b) the
interaction of the LFs and SHFs with SIs and SIDs respectively. In this sense t he researchers
did not analyze the entire VC but only a particular part of it. Other actors in the VC, e.g. other
buyers in Uganda (supermarkets or final consumers) and abroad (importers) were not
interviewed. This was beyond the scope of the study. 4 The team did also not provide extensive
further background information in the case sections or undertake further follow up research and
analysis on issues raised by LFs, SHFs and SIs/SIDs as this would have exceeded the scope of
the study. 5 In this sense, the very positions that LFs, SHFs and SIs/SIDs put forward and their
links to the theme of VC governance are the findings.
A small note: quite often there is an inclusion of (lengthy) quotations of the respondents’
statements in the main report. These quotations are supposed to help the reader to get a
personal impression of the statements being made by the respondents. The statements are
2
The questionnaire for the LFs had the follo wing sections: (1) Backg round of the buyer’s business, (2) Basis of the
relationship with farmers, (3) Governance of the VC, (4) Farmers’ upgrading, (5) Ro le of other VC actors,
especially support institutions, and (6) Outlook regard ing VC with SHFs. The team also had specific
questionnaires for supervisors of the LFs. The questionnaire for the SHFs had similar sections (adju sted to the
farmers’ perspective), while the questionnaire for SIs/SIDs examined the assistance provided to the VC wh ich
forms part of the VC governance.
3
The interview focus was rather on SIs than SIDs. However, in some VCs, there were few or none SI active while
some SIDs carried out significant governance work which was then explored through interviews. With some of the
SIs, no face-to-face interviews were carried out; only the written responses to the questionnaire were used then.
4
Some months after the beginning of the research activities, the NGO Land O’Lakes (U.S.) provided additional
funding which allowed carrying out two more case studies in the dairy sector: Sameer and Paramount. The
responsible researcher was William Ekere (Depart ment of Agricu ltural Econo mics and Agribusiness, MUK). The
findings of these two cases were not included in the UPTOP report however. The research team plans to publish all
the seven case studies at a later point in time if the necessary co-funding can be secured.
5
The team could not further verify the statements made by the respondents. By interviewing a wide range of actors
for each case, however, the situation described by the various respondents, if read together, can be seen to be close
to ‘reality’ (within the usual limits of a report setting). In a strict sense much of the write up would start with
‘according to the respondent’ - for matters of readability of the report, these phrases are left out most times.
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33. furthermore used to allow the actors at first describe the governance situation in the respective
VC and give their views on the relevant matters. We intend to give them a voice by presenting
their positions in their own words. This description of the situation by the actors is the
foundation of the report; the researchers then analyse (comment and interpret) these statements
where appropriate. The respective researcher had the responsibility to make the analysis to
his/her best knowledge, understanding and assessment of the situation at hand. 6 Due to limited
report space and research time this cannot be done with every aspect raised or after every
respondent’s statement that is presented. Some statements are indeed also self-explanatory. 7
The general picture: governance activities of the LF and results regarding SHFs
All LFs have undertaken efforts to establish and maintain direct and constant relations with
their farmers and build their production capacities and group organization. Below are the
reasons that explain the above: (i) the desire to strive for sufficient product quantity and
quality in the context of an often weak supply base due to low farmers’ capacities, (ii) control
of diseases and pests in the production area, e.g., cattle diseases, (iii) meeting standards of the
target market, e.g., traceability requirements in case of organic agriculture (OA), (iv) putting
into practice the LF’s Corporate Social Responsibility (CSR) plans, (v) publicity and marketing
needs of the LF, (vi) statutory regulation, (vii) market dynamics such as enhanced competition,
and (viii) interest in local development around the LF’s rural base (processing plant, own farm,
supplying farmers). Most LFs studied realized that having good relations with farmers and their
local communities and creating mutual interest in the LF’s success (a win- win situation for the
LF and farmers) is a pre-condition for meeting production objectives. In this context, some of
the LFs actively tried to enhance: the interest of farmers and surrounding communities in the
LF’s business project and prospects, and develop attitudes and behaviours among farmers and
community members that could directly and indirectly benefit the LF (higher farmers’ supply,
information provision, and loyalty levels) and, in turn, the supplying farmers.
6
It was at times difficult fo r the researcher to interpret a particu lar feature of the governance system based on
several hours of interviews with the respective actors only; indeed, every reader (based on e.g. reference to
different assumptions about ‘the market’) can read the situation (e.g. respondents’ statements) in different ways.
7
A key objective of the study was to document the actors’ views. By bringing their information and views on
paper, we wanted to shed some more light on the issue of governance in DVCs in Uganda. The broad scope of and
extensive interviews for the study was intentional in that we aimed at presenting as much as possible the different
governance issues in the DVCs. As mentioned, a number of quotes and points raised are thus merely documented.
However, we are of the view that even then they can still inform the VC actors and stakeholders as well as the
debate in general and stimulate future in-depth research.
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34. Findings reveal: LFs have to consider social aspects such as the community’s sentiments in
order to be accepted and grow in a rural setting. In this context, setting up a factory (or project
office) in the respective local area helps LFs get security from farmers and other local
stakeholders ensuring the factory is not a ‘white elephant’ but protected (in the wide sense) by
the relevant actors. A factory is also a booster of trust and confidence as it indicates to the
farmers and stakeholders a more formal business approach and long-term commitment of the
LF to the locality, especially compared to on and off ‘middle men’. Moreover, it is evident that
standards (organic, fair trade, quality and others), or market requirements in general - which
necessitate LFs and farmers to be in close contact (beyond spot transaction) have fostered
relations and cooperation between the two parties.
LFs governance activities offer significant benefits to SHFs in form of: (i) training, advice,
inputs and encouragement on matters of production and group dynamics (organization,
management, activities, and leadership). Given the report’s findings, a mix of technical and
non-technical training topics can be considered essential for successful VCD. Also, the
identification of successful farmers amongst the group of SHFs is important. LFs often
designate such farmers as lead farmers (LFAs) who act as role models and champions of
innovations the LF would like to see adopted by other SHFs. LFAs also help to build and
deepen trust and loyalty of farmers with LFs. The use of LFAs was found to be effective for
farmer-to-farmer learning.
Besides, farmers noted as positive : (ii) the provision of production inputs and equipment as
well as related services by the LF 8 , (iii) linking farmers to SIs/SIDs and other farmer groups for
training, finance, input supply or professional advice, (iv) providing a stable market and thus
incentive for farmers’ upgrading, (v) helping to address farmers’ risks, and (vi) allowing
farmers to have access to premium prices.
LFs further assist farmer groups in handling internal control systems necessary to meet foreign
buyers’ requirements, hence assurance of a market for the produce. LFs such as JE also deduct
a farmer’s financial obligation to the respective cooperative (or any other VC player, e.g. a
bank, or input supplier), which could be a useful arrangements also in other DVCs. Generally,
such service can be particularly useful for agricultural credit, as it provides means for loan
recovery at no or limited administrative costs to the financial institution. For specialty markets
(e.g., organic markets), the LFs meet the costs of certification which would initially be
8
Services were offered by LF with/without charge, at subsidized prices, or related to soft loans.
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35. prohibitive to SHFs. However, the certificate is issued to and is owned by the LF, which puts
SHFs at a disadvantage in case they would want to change the buyer. In such cases of
switching buyers, farmers would lose the premium price attached to the certification scheme
since they would have no evidence of certification.
Farmers in all the 5 case studies, appreciate the relationship with their LF; despite existing
challenges in each of the relationships. Farmers stressed the point of learning from the LF and
benefiting directly and indirectly from its presence. There are cases where, following the
success of the pioneer group of farmers in dealing with the LF, other farmers expressed their
desire to join the respective VC - at times however, limited markets do not allow the LF to take
extra farmers on board (SF case).
The upgrading results of the interaction and cooperation between LFs and farmers are usually
significant: respective farmers (not all though) have increased their skills, operate with better
processes, expand their fields, achieve higher productivity, increase quantity and improve
quality (the latter resulting in lower rejects by the LFs), have better group organization,
coherence and activities, or develop a more business oriented mind with incidences of long
term thinking and planning. Farmers’ upgrading also shows that farmers can improve their
production practices and products yet face a more substantial challenge in terms of
technological advancement. Farmer groups that are well linked with a supportive LF are also
foundations for setting up SACCOs which are institutions for encouraging rural savings and
credit services and can also be intermediaries for the implementation of the Warehouse
Receipt System (WRS), which is meant to ease SHFs access to credit after depositing their
produce in certified buyer’s store (including farmers’ cooperative society or any farmers’
buying entity).
Regarding the above improvements, farmers stated to be significantly advanced compared to
farmers who are not in the DVC of the respective LF and do not generally have relations with a
buyer. To a significant extent, the better performance of farmers who work with the LFs is due
to regular interaction with a buyer who gives farmers more than just payment for their product,
but sets supply standards and assists farmers (directly and indirectly) to meet them. The
socio-economic benefits for SHFs due to their participation in DVCs and upgrading and hence
increased incomes (through better and more regular payment and less quality related rejects)
were noted to be: improved quality of life, better health and housing as well as better schools
for their children. The differences noticed above offers an important insight to DVC
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36. proponents including state officials: considerably positive effects in terms of development of
both farmers and DVCs can be achieved if proponents would support LFs, their farmers and
other VC partners in relevant matters of VC development (VCD).
Given that the LFs studied were usually the only ‘developmental buyer’ with the most explicit
governance system in the locality where farmers were interviewed; one can assume that the
above mentioned positive developments would have been less significant and slower (or
entirely lacking) in the absence of these LFs and their governance efforts. That is why GOU
and its partners have to get more serious about promoting VCD through enhancing LF-SHFs
systems. A key message of this report to GOU and its development partners: given the
historical context of private sector development (PSD) in Uganda, business practices that fall
short of commitment, cooperation, trust and long-term perspective in business with the VC
partners (which seems the common practice of the majority of economic actors in the agro-
sectors at the moment), undermine or slow down the process of VCD in the country.
Besides, LFs still experience deficits among farme rs in terms of: adoption of improved
agronomic practices and environmental management, technology advancement, group
organization and governance, understanding VC matters and applying a more long-term
business perspective, risk taking behaviour, as well as trust, loyalty and honesty (e.g.,
honouring the payback-scheme for inputs in the BNP case). Due to their investment in the
farmers’ capacity and the need to get the farmers’ output, LFs often favour a continuation-
approach with the farmers; thus they find it hard at times to actually punish and (temporarily)
exclude defaulting or disloyal farmers from the DVC. LFs responses moreover revealed the
importance of farmers improving on the soft factors in VC business: communication,
commitment, trust, responsiveness, and eagerness to improve. LFs appreciate farmers who can
govern themselves. It was also noted that enhanced farmers’ awareness about commercial
agriculture (after trainings) does not guarantee that they practice it successfully.
The findings indicate that LFs have to be ready to (continue to) invest in SHFs also in future
in terms of: innovation, improved inputs, promotion of best agronomic practices, certification
costs, or linkage building with SIs and SIDs to mobilize assistance. Such continued support can
yield positive returns in the long run. There are high expectations - among farmers and VC
stakeholders such as SIs and SIDs - that LFs further increase the scope of their support and
enhance VC governance. Respective farmers’ suggestions imply that there is room for
governance improvement in every VC studied, in addition to improvements on price issues. To
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37. fulfil some of these expectations and take DVC governance to a higher level, LFs will have to
show a continued good, and in some issue areas improved performance on various fronts (not
just price) to keep or enhance the contentment and loyalty of the farmers. LFs need to be strong
in market expansion (marketing), amongst others, to finance its support measures and make or
keep the set up with farmers sustainable. Some of the expectations that are directed towards the
LF (e.g., in areas of pre- finance or input provision) are related to the fact that the weak or
uncommitted SIs do not provide respective services or assistance.
Various challenges in the governance systems studied
Farmers emphasized that the LFs’ measures and behaviour is generally different from other
buyers or agents operating in the respective areas. Other buyers mostly purchase the produce
(sporadically) but do not develop farmers’ production or group capacities. They often prefer to
interact with individual farmers instead of groups, and limit these intera ctions to the buying
season only. Other buyers are also rather informal (less visible, e.g. have no factory or field
office) and less trustworthy than the LFs studied. The study thus differentiates between
‘developmental’ (LFs studied) and ‘non-developmental’ buye rs 9 . Based on the interviews,
part of the deficient characteristics of non-developmental buyers are as follows: (i) being less
concerned with enhancing farmers’ product quality and volume (due to respective
characteristics of the buyer’s product, target market and business vision), (ii) not caring for
farmers, (iii) seeing investment in farmers’ capacities not as their role: not as an investment in a
sustainable and long-term oriented business structure (DVC) but a waste of the buyers’
resources, (iv) being overwhelmed by the numbers of farmers in their supply system, (v)
lacking the competencies and/or motivation to address loyalty and trust issue in the DVC, or
(vi) fearing that providing farmers support might strengthen the technical capacities and thus
bargaining power of farmers.
There is an important effect in this context: the ill-treatment of farmers by some (non-
developmental) buyers affects farmers’ perceptions and attitudes vis-à-vis (developmental)
buyers that are interested in establishing relationships. It makes the latter’s more difficult and
costly. One can compare this externality effect to unregulated environmental pollution: the
buyer who has to handle the damage by investing in perception and attitude change of and trust
building with farmers is not compensated by the ‘polluter’ (the previous buyer whose
9
A respondent from the state SI NAADS referred to them as ‘sub-standard buyers’.
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Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU

38. behaviour caused farmers’ scepticism towards buyers in general). This lasting effect in terms of
possibilities and ‘costs’ of trust and relationship building between VC actors should be of
concern for stakeholders who wish to promote DVCs. The state should look into this
externality effect and establish if there is a role for it to intervene. It seems more effective to
regulate buyers’ behaviour (and that of other actors) in the first place than dealing with the
direct and indirect costs of their actions for the process of VCD afterwards. VCD proponents
need to promote appropriate behaviour of buyers (and VC actors in general); this is
cooperative, transparent, and long-term oriented behaviour. Thus, what can GOU do to limit
ill-treatment of farmers by certain buyers; besides maybe: (a) starting to blacklist VC actors
with improper business practices, and (b) promoting good relations between farmers and
buyers in various ways?
Despite the upgrading efforts and related results of both LFs and SHFs, some LFs face a
supply problem (farmers produce too little or sell to other buyers); while other LFs face a
market access problem (the farmers’ supply is sufficient but the LF lacks a strong market or
buyer).
Further, there is conflict of interest between promoters of organic and conventional agriculture
with the latter advocating for the use of chemicals. Chemical dealers bring chemicals to the
organic project areas where the use of artificial chemicals is not allowed. Chemicals persist in
the soil for years and therefore could constrain the wide adoption of organic farming in an area
for many years to come, thus affecting prospects of respective organic DVCs.
Moreover, almost all LFs suffer (actually or potentially) from the loyalty-proble m: Farmers
who benefit from the LFs’ support - in the beginning of and often later on in the relationship -
sell to other on-off buyers who can pay a higher price to farmers because they had not invested
in their capacities (or supported them in other ways) in the first place. While LFs can reap some
loyalty benefits from the initial: (i) ‘eye opening effect’ of introducing a new business to
farmers (e.g., modern beekeeping) and/or (ii) assistance more general, this initial boost can
fade out to some extent over time with farmers’ loyalty levels - for various reasons - getting
lower; before getting up again at times, e.g. when the farmers ‘get burned’ in their transactions
with cheating buyers. We refer to these dynamics as ‘loyalty cycle’. Given the competition for
farmers produce, LFs will have to find new ways of boosting or refuelling the farmers’ loyalty
in later phases of the relationship; often through better prices but better in combination with
other measures as well.
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Wiegratz, J., P. Nyabuntu, and C. Omagor (2007), Supported by UPTOP with funds from the EU