By Johnson Manyakara, Director & Founder, The Horticultural World (Pvt) Limited
An out – grower scheme is a contractual arrangement between a company, or lead firm, and an out – grower, or landholder, for the production and marketing of farming products. In some instances, the contractual arrangement may include the processing of the farming products. It is an agribusiness model for sustainable mutual value creation between the company and the out – grower. This business model also creates value for governments and for communities.
Types of Schemes
Out – grower schemes vary widely in the extent to which inputs, costs, risks and benefits are shared between the companies and the out – growers, depending on the sector involved and on special needs and circumstances. In the Horticulture Sector, the schemes usually entail support to out – growers by the companies in the form of the following:
- Access to capital to fund both capital expenditure and working capital;
- Access to inputs, irrigation accessories and equipment;
- Access to appropriate technology;
- Access to training and extension services;
- Access to a facility to process the produce; and
- Access to ready markets.
Mutual Benefits
The Horticultural World(THW), a company in the Horticulture Sector in Zimbabwe, supports out – growers to grow and sell fresh fruits and vegetables in the local and export market. It also supports them in the processing of their produce.
“Seizing New Opportunities, Together” is THW’s tagline. Which opportunities, or benefits, are there to be seized by the parties in this investment?
- Benefits Accruing to THW
The benefits to THW, inter alia, include the following:
- Access to out – grower land;
- Service fees for-
- Installing irrigation systems and manual or solar pumps for the out – growers
- Erecting greenhouses/tunnel kits for the out – growers
- Provision of training and extension services to the out – growers.
- Monthly retainer from the out – growers;
- Licence to trade in export markets;
- Access to high margin niche markets;
- Compliance standards consultancy fees
- Division of Proceeds(Dops) for processing and marketing products/produce from the out – growers;
- Foreign currency generation;
- Increase in profitability; and
- A sustainable business.
- Benefits Accruing to Out – Growers
Amongst the benefits accruing to out – growers include the following:
- An opportunity for the out – growers to utilise/fully utilise their land;
- Enhanced capacity for the out – growers to run their enterprises with the necessary support from THW(refer to “Type of Schemes”)
- High quality and high yields of the select fruits and vegetable varieties grown;
- Enhanced technical and business capability for running their enterprises;
- License to trade in the export markets;
- Value addition of proceeds through access to THW’s processing plants;
- Dops for their processed and marketed products/produce;
- Ready market for their products/produce, both in the local and export markets;
- Foreign currency generation;
- Increase in profitability;
- A sustainable business; and
- Improved quality of life.
- Benefits Accruing to Government and Communities
Government and communities also benefit as follows:
- Employment creation opportunities, particularly for local communities;
- Increase in export proceeds;
- Import bill reduction with a significant local demand for fresh and dried fruits and vegetables being met locally and not through imports;
- Mitigation of the imbalance of trade/reduced trade deficits;
- Ending hunger, achieving food security and improved nutrition and promoting sustainable agriculture;
- Promotion of inclusive and sustainable economic growth, full and productive employment and decent work; and
- Combating climate change through the application of sustainable development principles throughout the value chain.
Critical Success Factors
Critical Success Factors for out – grower schemes are detailed below.
- Strong Governance Mechanisms
Successful out – grower schemes are governed by clear and fair contracts that regulate the relationship between the companies and the out – growers. Such contracts, with provisions of the contract fully understood by the out – growers and perceived as fair and transparent, should, inter alia, provide for the following:
- Term and Nature of the Contract;
- Scope;
- Formation and Membership of Out – Grower Groups/Forum;
- Produce Quality Standards and Assessment Mechanism;
- Price setting/Determination Mechanism;
- Out – grower Performance Improvement Mechanisms;
- Risk Management and Mitigation Strategies;
- Incorporation of Marginal Groups eg women and youths;
- Grievance and Dispute Resolution Mechanisms;
- Force Majeure; and
- Termination of Contract.
- Strong Human Capital Capability
For an out – grower scheme to succeed, one area of strategic focus is human capital capability development. It all starts with out – grower selection to ensure the right calibre farmer is identified and contracted. Thereafter, the farmer has to be properly nurtured through induction and training as well as hand – held by providing the farmer on – going extension services.
- Robust Out – Grower Support Plan
The company should also avail a robust out – grower support plan to the farmer(refer to “Type of Schemes). This will go a long way towards making the partnership arrangement a success.
- Ready Market for the Out – Grower’s Produce/Products
One of the major constraints for farmers in the Horticulture Sector is failure to access markets for their produce/products. In order to increase the chances of success for an out – grower arrangement, the company should, therefore, provide market linkages to the out – growers, markets offering competitive prices. This will ensure the out – growers are assured of a good return on their investment.
- Full Control of the Value Chain
By adopting a business model that ensures full control of the value chain – from selection and nurturing of out – growers, through facilitating them to access funding, to supporting them with irrigation accessories and equipment as well as the processing facility for their produce and a ready market, a company will not only create mutual value for the relevant stakeholders in an out – grower scheme but it will also be better able to manage some of the associated risks such as poor quality, poor yields, side – marketing, etc.