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WHY TRAIN FARMERS ON BUSINESS SKILLS?

Agribusinesses commercially engaging with smallholders, need the farmers to take-up services and practices that will increase productivity and secure volumes. Convincing farmers to adopt new practices or technologies is challenging. Smallholder farmers may gain a lot from adopting new agricultural methods and products, but many of them cannot afford the risk of trying and failing. Where larger farmers may lose their savings with an unwise investment, poorer farmers may lose land and put the whole family at risk. Given their vulnerability, smallholder farmers are reluctant to give up the tried-and-tested techniques that have served them and their communities in the past.

“Farming as a Business” emphasizes a shift from farming for subsistence, to farming for profit and improved livelihoods. Farmers who are able to critically examine the costs and risks related to different technologies and the benefits that accrue through improved efficiencies, are able to make better informed management decisions that better optimize available resources. Improving smallholders’ business skills helps the farmers to change the way they identify and assess the range of options for farm management and investment. Equipping farmers with the tools for this kind of income-oriented decision making, combined with strategy development to diversify income, can increase productivity, and improve profitability and better livelihoods.

It also helps companies to better understand the economics of smallholder farming systems and provide farmers with the kinds of services that are most likely to increase productivity and household food security.

For most smallholders, it is challenging to develop their farms as businesses. Most learnt farming from their families as a subsistence activity rather than as a business enterprize and they do not keep records. Field agents are often trained in production but not business management, and lack the skills to help farmers plan their enterprizes.

Training can provide farmers with appropriate-level analytical skills and business management tools which will help them to make decisions based on business principles, thereby decreasing costs, decreasing risks and increasing profits.

GROW AFRICA SMALLHOLDER WORKING GROUPBRIEFING PAPER

DEVELOPING BUSINESS SKILLS IN SMALLHOLDER FARMERS AS A BASIS FOR INCOME GROWTH

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WHAT ARE THE BENEFITS OF BUSINESS SKILLS TRAINING?

Benefits from value chain perspective

• Supply: Enabling farmers to increase the supply and quality of crops to off-takers.

• Segmentation: Understanding farm economics enables off-takers to segment farmers, which is useful for targeting different services to different smallholder types, depending on the farmer’s capacity to invest in their farm.

• Service Delivery: Analyzing cash flow can help to identify the package of services that are most relevant to farming households’ needs. For instance, a farmers’ ability to increase production through higher quality inputs is often constrained by limited cash flow at key times of the year due to conflicting demands on household resources e.g. school fees.

• Finance risk: Analyzing cash flow of the smallholder household production unit can also assist with mitigating the risk of providing access to finance to farmers. It allows for matching payment terms to cash flow, and provides a more accurate analysis of the payment capacity and true risk of lending to the smallholder. Farm records are also used to provide an indication of the viability of the farm business in order to receive credit from financial institutions.

From farmers’ perspective

• Uptake of services: Having a clear understanding of the household and farming system economics enables farmers to take the opportunities that arise from participation in value chains, particularly the uptake of services.

• Cash flow: It can help to smooth household cash flow, which enables better access to markets and promotes better management of risks.

• Decision making: Farmers are empowered to be able to assess what they can do on their own and how to utilize the support they have access to more effectively.

• Building trust: When the higher yields promised are not achieved, farmers can lose trust in the quality of services provided. Understanding the economics of the farm helps farmers to identify the constraints around cash flow or the funds that limit productivity.

• Overall household needs: Where analysis include the household as well as the farming system, having data on costs and incomes help to manage household food security and broader livelihoods’ requirements - school, heath, transport, energy, social etc. – by identifying the risks involved in taking up new opportunities and the trade-offs involved between different investment options.

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WHAT BUSINESS SKILLS DO SMALLHOLDERS NEED?

Smallholder farmers often do not have any training on accounting or finance. While farmers are aware of the costs and benefits to their households from farming, there is rarely any systematic method for minimizing costs and maximizing benefits and farmers are not always able to know or demonstrate whether their farm is making a profit. The following provides a range of tools which help farmers to understand the economics of their household and farming system and equip them with the ability to analyze past performance and future options.

Profit and Loss (P&L) statements – these measure a farmer’s income and costs during a specified period of time. Costs include inputs, labour (household and non-household) and transport. Income can cover all farm income as well as household income, including off-farm activities and remittances. The sum of the costs and the sum of the expected gross income provides an estimate of the expected profit or loss during the time period being examined. This also provides farmers with the break-even price (production cost per kg).

The P&L can be used to assess the potential benefits of a range of possible inputs, such as credit, improved seeds, fertilizer etc, which is a powerful tool to estimate costs and profits before committing to any investment.

Working out the P&L statement can completely change the way farmers see and understand their farm. It can be a powerful tool that suddenly ‘reveals the numbers’ and helps them to shift from decisions guided by vague estimates and guesses based on their past experience of farming, to asking questions around how to increase profits through cost-saving (e.g. saving income from one season to the next to lower the need for credit) and income-increasing strategies (e.g. drying and storing crops until the price rises after harvest). Often farmers understand the concept of profit for the first time when it is clearly explained during this kind of training.

Cash flow analysis – this shows how different household and farm activities contribute to each month’s cash-flow. Farmers tend to have ‘lumpy’ cash flow and this analysis reveals when there is a cash shortfall in particular months, and can be used to develop a plan for adverse conditions. It can also be used to decide on the best timing for capital purchases and to improve the timing of purchases of supplies and inputs.

Labour calendars – these help farmers to allocate their labour effectively on different aspects of the farming and household system. Smallholder farmers usually rely on household labour who tend to work on different tasks through the year. A labour calendar identifies when the monthly labour balance is positive and additional casual labour may need to be hired.

Investment plan – the P&L statement, cash flow analysis and labour calendar can be used to develop a business plan to define the activities that a farm intends to carry out and the sequence of those activities over time. Some companies are working with farmers to develop individual farm plans and also provide coaching to help them deliver on it (see farmer development plans below).

Record keeping – farm record keeping involves collecting an account of a farmer’s daily operations in the farm, including cash inflows and outflows. They are important to help a farmer to learn what has worked well against the projections and what has not, and how to adapt the planning process in the future. Many farmers do not keep records for various reasons: the subsistence nature of farming does not provide an incentive for keeping records, high levels of illiteracy and low numeracy levels and farmers often do not have the skills to utilize the data they collect. Where records are kept, it is usually in an exercise book rather than electronically. Once the concept of Profit and Loss is understood, trainers report that farmers often start keeping records because the opportunities are evident to them.

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Different models in use include

Conseil aux Exploitations Familiales (CEF) (Management Advice for Family Farms): CEF is an approach that has been promoted for nearly two decades in Francophone Africa with the support of French cooperation entities, most notably the French Development Agency (AFD). CEF is a holistic approach that allows the producer and their family to analyze their situation, plan, take decisions, monitor their activities and evaluate results. It encompasses the entire farm by including the technical, economic and social aspects of their activities.

A farm diagnosis is carried out on an individual farm to identify farmer requirements and orient activities. Collective training is provided on farming techniques and management concepts and the use of corresponding tools (harvested crop management, crop-season planning, cash flow planning, revenue-expenditure accounts, etc.). In this way, CEF encourages farmers to think and reason; helps them incorporate measurements and forecasting in their practices; and teaches them to use techno-economic indicators (gross margin, costs/income ratio, etc.). This helps the farmer analyze the results and the performance of his farm.

Farmer Development Plans: In the cocoa sector in West Africa, the quantity and quality of adoption of good agricultural practices by smallholder farmers has been lower than expected. Chocolate makers and cocoa traders are changing the approach to training, which has traditionally been delivered to groups of farmers through Farmer Field Schools. Farmers are now being trained on an individual basis through one-on-one coaching, which is results oriented and tailored to individual farmer circumstances and needs. The process starts with a diagnostic and planning phase which produces a two year farm development plan for each farmer. The plan specifies the requirements for training and other services including inputs, pesticide application equipment, and pruning tools depending on the farm size, level of farm expertise and the investment decisions developed through the decision-making tools. Coaching takes place through regular individual visits, training sessions, and demonstrations. The advantage of such an individual approach is that individual hurdles can be addressed.

DELIVERY MODELS FOR TRAINING

Farming as a Business (FAB): Prorustica, a UK-based consultancy, provides in-village or on-farm training sessions on ‘Farming as a Business’ to groups of farmers (and possibly trainers) and applies the concepts and tools of financial management in a very practical manner. The FAB analysis generates information on four areas: i) food production (actual food stocks obtained from specific crop), ii) land productivity (yields and total production), iii) profitability (total cost, total income, gross profit, gross profit per land unit and gross margin), and iv) financial return on family labour. Prorustica takes the farmers through a process to calculate these figures and helps farmers to use the calculations to assess different investment options (inputs, services, additional labour etc). Also see case study below.

Farmer Business Schools: FBS is an approach developed by GIZ with support of the Bill & Melinda Gates Foundation and member companies of World Cocoa Foundation to promote entrepreneurial skills of smallholder farmers. FBS focuses on improving farmers’ business skills as a prerequisite for the adoption of improved techniques and investments in agricultural production. FBS sensitizing farmers to market opportunities and possibilities to improve productivity, family income and nutrition. The core of its modules is income-oriented decision-making based on cost-benefit analysis of different technologies for a lead crop and two other food crops, combined with strategy development to diversify income. GIZ now applies FBS to twelve different lead crops in twelve countries in West, Central, and East Africa and over 400,000 farmers have been trained.

Mobile technology: The rapid proliferation of mobile technologies has resulted in new analytical business tools and calculators to equip farmers and producer organizations with production and sales data to help them make informed business decisions. For example, CRS worked with partners to develop a business planning tool and profitability calculator known as Farmbook. This tool enables field agents to register farmers, build business plans and evaluate the profitability of specific products.

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Literacy levels: Depending on the country, the literacy level of smallholder farmers is very diverse and can range from 10% to 90%. Women often have lower literacy because they spend less years at school. Literacy is not a prerequisite for farmers to understand and grasp business skills. Often the more literate farmers in a training group assist those with lower literacy. Training is easier where the native language is used and provided on flip charts rather than using computer software.

Disclosure: Family finances are often private matters, so sensitivities can inhibit disclosure. Some trainers work with a group to define a hypothetical “average” farmer that represents a normal set of annual income and expenses. Humor, such as asking the budget for “men’s drinks”, can also encourage frank and complete disclosure. Once they understand the model, it is up to individual farmers to apply it for themselves.

Time and equipment: Adequate time is needed to allow farmers to understand new concepts and to discuss the new concepts in the group.

Companies, agencies, governments and donors could usefully consider significantly scaling up their support for business skills training for farmers, as a foundation for both smallholder income growth and productivity gains.

Costs and incentives: While costs of rolling out business skills training to farmer can be high, in some sectors e.g. cocoa, there is increased awareness and urgency from industry players to better understand the farming system, including household income, in order to support farmers to increase productivity and profitability. In these cases, companies are working with individual farmers to develop a tailored farm development plan, which includes profit and loss estimates. Some companies, such as Mars, are requesting that their suppliers also work with farmers to assess the kind of investments farmers can make in their farms and the consequences for cash flow.

Pathways to scale: Technology can help to reach scale and Mars have worked with Grameen Foundation to develop an app for farm development plans. However, the initial contact with farmers needs to be face to face as the concepts are new and can take time to be fully understood.

WHAT NEEDS TO BE CONSIDERED DURING THE TRAINING?

HOW TO TAKE BUSINESS SKILLS TRAINING TO SCALE FOR SMALLHOLDERS?

Often farmers are introduced to calculators for the first time e.g. Ecom in Ghana purchased thousands of calculators for the Farmer Business School. Farmers found them really useful and Ecom had significant demand for calculators from farmers who had not attended the training.

Coaching: Some training is provided as a once-off but ideally there should be follow up trainings offered to help farmers to fully understand and apply the financial concepts and tools. Coaching individual farmers enables them to integrate the new mode of decision making and assessment of results effectively into their household and farming system.

Evaluation of results: Increased record keeping and data analysis at farm level can significantly increase the capacity to evaluated positive changes in productivity and profitability. Attribution is difficult because changes in behaviour, such as increased use of improved planting material, cannot always be traced back to business skills training.

Some initial training takes place through focus groups (e.g. Prorustica) or through farmer business schools (e.g. Ecom in Ghana), while other companies work with farmers on an individual basis. Positively, once trained farmers start making better commercial decisions, then greater scale is achieved through other members of their community copying the successful practices of their neighbours.

Effective scale up of farming as a business needs to be focused both at individual farmer level as well as at farmer group level, in order to professionalize and increase profitability of farmer organisations.

Training capacity: There are challenges around the capacity to deliver at scale as it requires a specific skill set to traditional extension services, which are based on agronomy skills. Some organizations are considering ways to develop this capacity through training of trainers, e.g. IDH are looking into ways to develop the capacity in the cocoa sector in Cote d’Ivoire, where trainers can be trained to educate future business coaches.

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THE CASE: TRAINING ON ‘FARMING AS A BUSINESS’ FOR SMALLHOLDERS IN SOUTHERN TANZANIA

‘FARMING AS A BUSINESS’ TRAINING

The Alliance for a Green Revolution in Africa (AGRA) has undertaken interventions in Tanzania since 2006 and has invested in excess of US$ 70m. Through its partners, AGRA has undertaken strategic interventions to improve farmers’ access to finance, markets and inputs. It has also supported the development of a vibrant seed and fertilizer sector by supporting the development of seed and fertilizer companies as well as Agro-dealer distribution systems.

BRiTEN (a Tanzanian Social Enterprise), one of many implementing partners working with AGRA, has over the last four years supported the establishment of linkages between farmers, input providers and markets. Cumulatively they have supported 15,000 farmers in the southern highlands in Tanzania, some of whom are participating in the Patient Procurement Platform (PPP),

Prorustica (a UK based consultancy company) was asked by WFP to carry out a survey of smallholder farmers in 2013, as part of the planning work in preparation for the PPP. BRiTEN were part of the team that participated in carrying out this work. The objective was to collect data on the economics of the local farming systems as a basis for farm segmentation and benchmarking of prices. The survey utilized farmer group discussions to capture data on costs and incomes, as well as cash flow and labour calendars for the range of crops that farmers produced, including maize, as well as broader household consumption.

During this process it became apparent that farmers were understanding the costs and revenues of production and that it was providing them with significant insights into farm profitability and cash flow for the first time. For instance, they started to realize that using recycled seed rather than improved varieties was impacting on income and they got insights into where they could cut costs. The initial data gathering was carried out in long (six hour) sessions that also served as trainings for farmers and at the end, farmers wanted to discuss the findings amongst themselves.

The team realized that training on ‘farming as a business’ that they had been providing over the previous two years to 15,000 farmers – around record keeping, costs

which is promoted by WFP and has AGRA as a global member. The PPP is a commercial offshoot of the World Food Programme’s Purchase for Progress program (P4P). The aim of the initiative is to increase farmers’ incomes and yield and also mitigate the risks that inhibit smallholder farmers from profitably engaging in the market. The initiative is being piloted in Tanzania, Rwanda and Zambia and hopes to scale to 12 African countries in total in the next three to five years. In Tanzania, the PPP has convened a range of stakeholders across the maize value chain to enable smallholder farmers to access services throughout the farming season. Produce contracts offered under the initiative are helping to unlock a range of for-profit services that include financial products and inputs.

of production, contracting and negotiation, collective marketing – had lacked the key components which helped farmers to understand and assess their investments. These components were calculating the profitability of their farms and understanding their cash flow. The cash flow showed farmers the relationship between different crops (e.g. maize) and the overall farming and household system, and how the different income streams interact. The calculations showed that each enterprise needs to break even or generate income.

These calculations show farmers the ‘end game’ – the projected revenue – which completely changes farmers’ approach. They start to see how an investment in improved seeds will impact on their revenue, for instance, or aggregating their crop and storing it until the price increases.

As a result of the insights that the team had into how profitability and cash flow analyses can change farmer behaviour, these modules have now been added to the ‘Farming as a Business’ training. Training will be rolled out to an additional 15,000 farmers through the BRiTEN PPP Field Extension Team, who will train lead farmers, who will in turn train farmer groups.

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RESULTS

CHALLENGES

The team has not yet produced empirical data to demonstrate the quantitative impact of the training. However, the anecdotal evidence suggests that once farmers understand the numbers, they quickly change their approach to the project and within two years can show significant impact. They are able to understand the training better and as a result, are increasing their demand for high quality inputs (improved seed and fertilizer), requesting larger markets and participating in collective marketing.

Farmers are requesting to be included in the PPP because they can see from other farmers that it increases farm income and are able to calculate the numbers behind it. Some farmers are expanding the land they are farming, investing in draft animal power.

• The training needs to be carried out for more than one session. An initial session is sufficient to introduce farmers to the concepts of profitability and cash flow, but follow up training is required for them to fully grasp the information and integrate it into their own system.

• The training required is intensive, so innovations are needed to enable scale up for large numbers of farmers to participate.

• Extension staff tend to have an agronomy background rather than a business background, which can limit comprehensive understanding of the business concepts.

Farmers are reporting being able to have food during the lean months before harvest because they are now able to smooth their consumption throughout the year. In some areas yields have increased by fifty percent through access to improved seed and incomes have increased by twenty percent. The market has become more structured as farmers have learnt to sell collectively, which is reducing the price differential between market price and farm gate price.

The team has gone further in developing a matrix that allows the farmer to assess which of the crops or activities to make investments and concentrate on.

• Donors don’t always understand how important profitability and cash-flow training is for farmers.

• This training needs to be expanded to farmer groups as well as individual farmers in order for groups to be sustainable. Farmer groups need training to understand profitability and cash flow in addition to training on business plans.

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REFERENCES

CONTRIBUTORS

CRS, CIAT, USAID (2015) A Guide to Strengthening Business Development Services in Rural Areas http://www.crs.org/sites/default/files/tools-research/guide-to-strengthening-business-development.pdf

Eastern African Fine Coffees Association (2003) Coffee Farming as a Business Trainer’s Manual https://www.sustainabilityxchange.info/filesagri/Coffee-farming%20as%20a%20business%20manual%20complete.pdf

GIZ (2015) Experiences with the Farmer Business School (FBS) approach in Africa Sector Network Rural Development Africa (SNRD) http://ssab.caadp.net/en/materials/docs/GIZ_Studie%20SNRD_EN_Webversion_150914.pdf

Hystra (2015) Growing inclusion? Insights from value chain development in Ugandan oilseeds Bill Vorley, Els Lecoutere, Sarah Mubiru, Rodney Lunduka, Jan Ubels, Bernard Conilh de Beyssac, Daniel Ikaabahttp://ssab.caadp.net/en/materials/docs/GIZ_Studie%20SNRD_EN_Webversion_150914.pdf

Prorustica (2016) Farming as a BusinessTraining & Data Collection Method https://www.growafrica.com/groups/farming-business-training-data-collection-method

Tham-Agyekum et al (Dec 2010) Assessing Farm Record Keeping Behaviour among Small-Scale Poultry Farmers in the Ga East Municipality. Journal of Agricultural Science http://ir.knust.edu.gh/bitstream/123456789/83/1/Farm%20Records%20Publication.pdf

Research and writing by Karen Tibbo, Wasafiri Consulting.

Coordinated and edited by Ian Randall of Grow Africa and John Macharia of AGRA.

Knowledge and experience gratefully received from:• Frédéric Kilcher and Patrick Guyver, Prorustica• Josephine Miingi Kaiza, BRITEN• Ananth Raj, WFP

www.agra.org

www.growafrica.com

GROW AFRICA SMALLHOLDER WORKING GROUPBRIEFING PAPER

DEVELOPING BUSINESS SKILLS IN SMALLHOLDER FARMERS AS A BASIS FOR INCOME GROWTH