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Catalytic investment strategies to improve the lives of millions of small farmers in Africa

ImpactAlpha, Feb. 4 – When it comes to driving shared prosperity across a market, how capital is deployed is as important as what it funds.

In “Bending the Arc,” the consultancy FSG argues for a systemic approach to shifting the practices of a large number of small and mid-size businesses until inclusive practices become the market norm for millions of farmers.

The strategy, which requires the effective use of flexible grant and concessional capital, holds far greater potential for positive impact than even smart investments in individual enterprises that affect only thousands of farmers, concludes the report, which was backed by the Gates Foundation and UK government’s Department for International Development. Two catalytic strategies stood out:

  • Guide and shift. From an inefficient monopoly in the early 1990s, the Kenyan dairy sector has tripled the number of smallholder milk producers (to 1.8 million), increased annual production to 4.1 billion liters (up 64% since 2001) and significantly improved quality. ‘Guide and shift’ strategies support an ecosystem of enterprises and actors to  adopt inclusive practice and shift market norms. Catalytic capital: Donor support and commercial investments can boost the capacity and participation of smallholders and increase the business risk of not being inclusive.
  • Disrupt and grow. Gulu Agricultural Development Company sources and mills cotton, sesame and other products from more than 80,000 smallholder farmers across Northern Uganda. It has used grants and concessionary capital from Danish development bank Danida, Acumen, Root Capital, AgDevCo and others to subsidize the cost of expanding and supporting its supply supply chain of small farmers and to demonstrate a track record to allow it that has helped it to access commercial capital. The path more traveled, ‘disrupt and grow’ strategies back individual enterprises with the potential to grow the incomes and stabilize livelihoods for thousands of farmers. 
  • Catalytic tools. Permanent capital vehicles, such as Maris Africa, can better match the time horizons for inclusive agribusiness. Market-level platforms, including East Africa Tea Investments, can help coordinate investment strategies. Farmer trusts, deployed by Babban Gona, can make smallholders owners. Enhancements and incentives, like those be used by Aceli Africa, can mitigate smallholder lending risk for local financial institutions.  

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