The objective of this component is to support the development of high potential value chains (VCs) in Lesotho’s agricultural sector by strengthening backward and forward linkages within selected VCs. Component interventions foster the integration of a greater number of smallholder producers that dominate Lesotho’s rural landscape in potentially remunerative VCs, promote diversification from uncompetitive mono-cropping to high value cash crops and sustainable livestock production, improve productivity, quality, value addition and market linkages towards increased agricultural commercialization. The component strengthens horizontal alliances and encourage farmers to establish producer groups, strengthen vertical alliances by building trusted commercial partnerships between farmers and private agri-businesses and drive enterprise operations towards more lucrative domestic and export markets. Activities under the component are expected to result in the positive outcomes of job creation, improved beneficiary incomes, better nutritional outcomes through nutrition sensitive initiatives and increased economic opportunities for women and youth in the rural sector.
Sub-component 2.1. Support for Horizontal Alliances
The project supports the formation of newly established as well as strengthen the existing farmer groups in Lesotho’s agriculture sector. The multi-fold benefits of horizontal alliances, including, inter alia, sharing of market information, building economies of scale for input supply, product assembly, transport, packaging and storage as well as effective capacity to negotiate and enter into supply agreements with off-takers enable farmers improve their on-farm productivity as well as enhance their opportunities to access markets. Special attention is accorded to the needs and interests of women and youth (defined as people under 35 years of age).
Where feasible, the formation and strengthening of horizontal alliances drawn on the Smallholder Horticulture Empowerment Project (SHEP) approach developed by the Japan International Cooperation Agency (JICA). This approach shifts smallholder thinking from subsistence farming to farming as a business by training farmers to conduct their own market surveys to identify local crops with potential for commercialization; training them to grow these crops profitably; organizing stakeholder forums to exchange information with other like-minded farmers, input suppliers and potential buyers; and by helping them to build good relations with these market agents.
- The formation and strengthening of horizontal alliances is facilitated by an NGO or business development service that has extensive experience of group dynamics and familiarity with the culture and ethos of Basotho farmers. The TA and training financed includes inter alia basic accounting and financial management, governance, business management, procurement.
Market linkages is built through supply contracts between producers and buyers or aggregators, which specify the volumes to be traded, quality requirements, delivery mechanisms and prices. Progress on the linkages will be monitored as part of the project MIS during the period of grant payments (3 instalments), and thereafter be follow-up through periodic surveys. These contracts will also allow for surplus production, over and above the contracted amount, to be sold elsewhere for additional income. Where aggregators/buyers have adequate scale and resources, supply contracts will also provide for input provision, seasonal finance and extension advice. Less formal VC links based on good communication, continuous commercial interactions and trust will be built where aggregators and/or suppliers lack the capacity to benefit from formal contractual relations. Key value chain actors will benefit from study tours to regional enterprises with advanced knowledge of and experience with handling and processing VC commodities at similar scale.
- A national or regional business development organization or NGO will be contracted under the project to work with farmers and agri-enterprises to build capacity at all points along the value chain, foster and strengthen linkages between VC actors, broker contracts and improve business management. The service provider will have a sound understanding of the productive alliance approach, farming sector in Lesotho, wide experience with value chain development and a good understanding of local and regional markets. The service provider will provide tailored training and advice for the preparation of high quality, fundable grant proposals and related business plans and business management to potential grantees. All grant applicants would be required to undertake this training which will be included as a criteria of grant screening. This will ensure viability and quality of the investment financed. This training will also be provided to extension staff (training of trainers) so that to enable them to continue such training beyond the life of the project.
Subcomponent 2.2. Support for Vertical Alliances and Commercialization
The sub-component seeks to leverage private investments for the development of a more commercially oriented agriculture sector. It supports commercial and semi-commercial off-takers (micro-, small- and medium agro-enterprises) to drive their operations towards more lucrative domestic and export markets while simultaneously providing smallholder farmers that dominate Lesotho’s rural landscape opportunities for increasing agricultural productivity and improved livelihoods. Through the provision of technical assistance and grant financing, the project facilitates the implementation of productive partnerships between farmers (both aggregated and individual) and off-takers. Such productive alliances incentivize smallholder farmers to raise productivity and marketed surplus and assists agri-business enterprises to expand into domestic and export markets based on a more secure supply of raw materials and quality produce/products. This is achieved through two matching grant programs:
Matching Grants for Improving Smallholder Productivity: Smallholder farmers have access to matching grants to finance investments for increasing on-farm productivity in high potential Value Chains including horticulture, potatoes, dairy and small-scale pig, agro processors and poultry. Investment support includes the financing of, inter alia, small farm implements and equipment, climate adaptive technologies such as shade nets, tunnel houses, drip irrigation and water storage equipment, improved seed varieties and seedlings, improved livestock breeds, agro-processing equipment, packaging equipment, and storage – where these investments lead to increased production and marketed surplus for the selected value chains. Maximum grant size be limited to $US30,000/applicant (individual or group). Grants will require an average of 20 percent equity contribution. Based on experience with original SADP, in-kind equity contributions will not be considered as they are difficult to measure and verify. The equity contribution has been kept low to compensate for this restriction. In addition to a viable business plan and a cash equity contribution, the group will also have to demonstrate that it has been operating for at least 12 months and that it has independently implemented other activities to achieve group objectives. Under this window, there will be a quota of 30% youth and of 50% women.
- Matching Grants for Agribusiness-Enterprises.
Commercial farmers, aggregators, processors and other business enterprises involved in the project value chains have access to matching grants to facilitate investments in postharvest infrastructure and management, including upgrade or construction of processing facilities, cold storage equipment, alignment with international health and safety standards, calibrating/sorting/grading machines, packaging, product development etc. Grant size ranges from $US30,000 to $US100,000. All grants under this program require an equity contribution, in cash, of 30 percent of the total value of the investment. Applications for the agri-enterprise grant program will need to estimate the quantity and quality of raw materials they are seeking from farmers and express a clear commitment to building good business relations with farmer suppliers. They will also provide an estimate of the direct employment their investment will generate. Those with viable business plans are screened to assess the extent to which their investment proposals will drive commercialization by farmer suppliers and the level of direct employment generation. The selection criteria for beneficiary agri-business enterprises include: a viable business plan for expansion, a clear commitment to source raw materials from local farmers, and a willingness to build effective commercial relationships with smallholder suppliers. Start-up enterprises are not eligible for project support.
- Besides the business training program guided by The Umbrella Company, the youth applicants will be required to participate in an incubation program. This will consist of: (i) an orientation phase where young applicants visit a number of successful farmers (the mentors) engaged in different types of activities (this would be prior to the business training program); (ii) support to development of the matching grant proposal, followed by (iii) continuous mentorship by one the mentors engaged in the activity of choice (this would be after receiving the grant, to support the youth in starting their activities).
- Agribusiness incubation aims to provide the youth with balanced, practical experiential learning; it also provides business development, market access, technology transfer, and financial services that are backstopped through mentorship and networking. A unique feature of this model remains its systemic approach to development where synergy is built by developing and leveraging interactions between not only the primary production units but also between the primary production, secondary (agro-processing and machine production etc.), and tertiary services. The value-chain logic permeates the entire model and represents the main element that guarantees resilience and sustainability.
- The mentors will represent a wide range of technical expertise in the various value-chains and may be drawn from successful farmers having received a grant and technical assistance under SADP I. Where capacity is available, existing farmers’ organizations may be used to facilitate graduated youth to expose them to good agribusiness practices. The requirements to identify suitable incubators include (i) ongoing operations in the specific value chains, (ii) clear linkage from the business operation to higher-value and higher-volume off-takers, (iii) clear linkage from the business operation to reliable service and input suppliers, and (iv) willingness to mentor others. In SADP-II, incubators should ideally be selected from the successful SADP grantees. The role of mentors will be to: i) offer an overview of their activity to aspiring young grant applicants to help them choose their income-generating activity; ii) support in developing a matching grant proposal and business plan, (iii) offer hands-on training on their farm to a group of youth (10 to 20 members per group) after they received a grant ; iv) make individual visits to young grantees on their farm. The cost of the services provided by the mentor will be a standard cost included in the grant proposals for youth and paid for from the grant.
