(Left to right): Heiner Böhme (Namibia Meat Corporation), Edgar Twine (ILRI Tanzania), Signe Nelgen and Jo Cadilhon (both from ILRI Nairobi), presenters on innovative financial products and services for livestock and dairy value chains in Eastern and Southern Africa at CTA’s Fin4Ag conference, 15 July 2014, Nairobi, Kenya (photo credit: ILRI/Jo Cadilhon).

This week (15 Jul 2014), the International Livestock Research Institute (ILRI) organized a discussion at CTA‘s Fin4Ag Conference in Nairobi on ‘Testing innovations in livestock and dairy value chain finance: Insights from East and Southern Africa’.

The discussion was moderated by Jo Cadilhon, a senior agro-economist in ILRI’s Policy, Trade and Value Chains Program who is based at the institute’s Nairobi headquarters. The three speakers on the panel were:

• Signe Nelgen, agro-economist in the Policy, Trade and Value Chains Program of ILRI in Nairobi
  
• Edgar Twine, post-doctoral fellow and value chain economist based in ILRI’s office in Tanzania
• Heiner Böhme, executive in Livestock Procurement at the Meat Corporation of Namibia (Meatco)

The three speakers presented models to provide financial products and services to livestock and dairy value chains; they are available here. Given the specific characteristics of the livestock sector in Africa-Caribbean-Pacific (ACP) countries detailed in the video below (also available here), the panel and the discussion with participants came to the following recommendations. The idea is to achieve better collaboration between development stakeholders and the private sector in order to trial new financial products and services relevant to livestock and dairy value chains in ACP countries.

First, a better organization of the value chain actors is a must. This should first be the case between actors involved in the same activity within the value chain (organizations of producers, organizations of traders, etc.). This can lead to bulking produce and thus better bargaining power in transactions. Importantly, grouping also introduces peer pressure and group work leading to better adherence to buyers’ quality requirements and good management practices.

The second recommendation is to allow the emergence of a mechanism for all the stakeholder types involved in the value chains to meet so as to identify their joint challenges and determine how they can all contribute, each according to their capabilities, to implementing strategies to develop livestock-relevant financial products and services. Development partners should facilitate the creation of commodity associations or national-level innovation platforms to allow the private sector, government and non-government agencies, including research organizations, to discuss the challenges of the industry and find out how they can partner to solve them.

Third, value chain stakeholders need to agree mutually on a monitoring, evaluation and internal reporting framework for their value chain financing schemes. This is the mechanism that will ensure that the actors who had agreed to partner in implementing a financial model are indeed playing the role entrusted to them in putting the model into practice.

Fourth, to encourage the participation of private financial stakeholders in the schemes, a mechanism is needed to hedge against the relatively high risks involved in complex multi-stakeholder livestock value chains. A guarantee fund should be set up to allow the finance providers to hedge their risks. If all other recommendations are followed, the loans to smallholder farmers and small-and-medium enterprises (SMEs) should not lead to payment default. Thus the initial wariness of financial stakeholders should eventually subside, allowing the guarantee fund to be put to other relevant uses for the value chain. However, dedicated managers are needed to run this guarantee fund.

The final recommendation is to develop the capacities of all stakeholders involved in the value chain so as to make best use of the financial mechanism being set up. Capacities to be developed: better technical and managerial practices for farmers and SMEs; understanding the complexity of local livestock chain contexts for service providers, financial actors and policymakers; identifying credible spaces in which to gather relevant information on the value chain; managing complex and relevant financial products for the bankers and insurers.

Jo Cadilhon, senior agro-economist
ILRI Policies, Trade and Value Chains Program