by Suzanne Fogg
While other ACRE Consortium members work with rural enterprises across all sectors from manufacturing and services to technology and energy, Twin focuses entirely on supporting farmer-owned producer organisations (POs) and their members growing, marketing and trading coffee, cocoa and nuts. Twin’s business management support activities are part of a holistic approach that encompasses 5 other pillars; quality and processing, market access, good agricultural practices, gender justice and governance.
So, how does this work in supporting enterprises to become investment-ready for ACRE investors? In this short feature, I am aiming to illustrate three key issues that underpin Twin’s approach.
Fundamental to Twin’s ethos is promoting development through trade. As a result, Twin’s business support focuses on building financial and business capacity of POs, defining and embedding business models, and developing market linkages within each of the three value chains and improving market access for POs in Africa and Latin America. These factors are part of an ongoing reflection within Twin about how we can best provide coherent business management support to POs.
Factor 1– Ensuring financial planning and management is linked to business planning
For POs, large and small, assessing financial and business capacity is essential to ensuring sound business planning. Even a simple assessment can identify strengths as well as weaknesses.
Even where a complex and/or expensive accounting system exists, it is important to ensure there is link between the accounting activities and the financial planning. However, financial planning is not the end in itself. We find some POs where accounting systems and the desire for compliance (even in fragile countries with weak legal frameworks) appears to drive business planning. Financial management needs to support business planning that will enable growth and business success.
Often the introduction of elaborate accounting systems can be seen by motivated leaders and/or boards as potential tools for identifying opportunities for efficiencies. In practice, a well organised management approach that links management accounts and reporting to business decision making is key.
Investing in accounting systems and business-savvy accountants are not enough to build a robust and efficient organisation unless there is a strong management structure in place and empowered to make business decisions. Sound decision making needs to be supported by clear information flows and regular data collection. Twin’s team in Kigali is strengthening business management knowledge, systems and processes of a number of coffee POs in East Africa identified as young/less experienced businesses.
For POs and cooperatives who by their statutes are responsible for holding Annual General Meetings with their members, where Board and Senior Managers are openly held to account, strong financial and business capacity becomes most apparent. This public scrutiny by members does not ensure there is good business planning, but it can highlight poor planning and weak decision making if it exists. It can also be used to demonstrate a POs resilience to external factors or inversely highlight the weaknesses and vulnerabilities to economic or environmental shocks.
Factor 2 – Embedding the business model into the organisation
Across coffee, cocoa and nuts, Twin is often invited to redefine the business models with the management staff and Boards of POs. For large and small producers, for both well-established POs and those relatively new to trading, we approach business modelling with both the General Manager and Accountant to give direction to the business and assess business performance in changing environments.
For example, Twin is currently working with a PO of peanut farmers in southern Africa that is reviewing its business model completely with a view to improving the quality of their nuts. The decision to review the incentives for buyers, and to shift from a volume-based system to a quality-based system has come about from detailed discussions between the PO’s Accountant and the General Manager and will have direct implications on the business model.
Consulting on the business model with the Agricultural Extension and/or Field Supervisor teams is also essential to fully understanding the farm-level risks which can quickly impact on the business model. The agricultural sector (that accounts for 46% of ACRE global footprint of enterprises), and to a lesser extent livestock sector (7% of ACRE global footprint) have additional complexity in their business modelling as compared to manufacturing (8%) or handicrafts (4%) and will require some risks, such as climatic and environmental risks, to be considered differently in the business modelling process.
For the same peanut PO, it has transpired that one of the challenges to improving the quality of the nuts stems from the in-field drying techniques used by farmers. Regardless of the quality of the financial reporting and the changes to the financial incentives for buyers, the likelihood of success of the new business model requires changes at the farm level that only the field-level staff will be able to address. All business models require full organisational support and regular review thereafter.
Factor 3 – Connecting market linkages and market access
Most POs are focused on survival, however, some are ready for growth. Regardless of their mind sets, the PO’s staff will need to consider market access and establish a clear sales and marketing strategy that is based on a strong business model.
As well as reviewing management and governance structures of POs (role of the Board, process for decision making, separation of duties, etc.), Twin focuses on strengthening linkages in the value chain to build long term trading relationships based on trust and transparency.
Twin has found that a key element of building trust comes from visibility about business models and from developing the PO’s understanding of the markets such that they are able to identify and engage with buyers.
For cocoa POs in particular there is colossal lack of knowledge about the cocoa sector and the consolidation of cocoa buyers, traders and processors. This lack of knowledge encompasses the fundamentals of the cocoa markets which, may include what influences cocoa prices for farmers in local markets, for example. This is a key barrier to growth in Nigeria, the fourth largest cocoa producing country globally, as well as in Sierra Leone, a country in the process of re-establishing its cocoa credentials decimated by years of civil war. Twin is building the capacity of cocoa POs in West Africa to understand their position in the value chain and adopt strategies and tools to mitigate and manage price risk as an integral part of their business management activities. They can then engage with buyers more confidently.
In coffee, Twin is engaged at all stages of the value chain and works with POs to establish their track record in trading to speciality coffee markets in Europe, Asia and North America. Using various tools and marketing initiatives (www.JMIcoffee.org), Twin’s marketers are working to build partnerships between producers and buyers throughout the year at trade shows and speciality coffee marketing events.
This experience in trading, combined with the financial and business management capacity, business models and growth strategies, are important in supporting POs to become ready for growth and investment ready. ACRE investors can then consider to invest in a PO over an extended time scale and see the impact of their investment for both the PO and its members.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the official policy of Twin or ACRE.