Stuart Morris

Looking for balance; understanding the incentives of public-private partners

3. Jul 2016

The idea of making profit through poor smallholder farmers seemingly remains an uncomfortable concept for many in the nonprofit sector. Although private sector engagement is becoming increasingly recognised, I’m often left with the feeling that for many, inclusive business is simply a new buzz word alongside ‘gender sensitive’ and ‘climate smart’ agriculture. In the increasingly competitive world of project funding*, creative use of wording has never been so essential. One would hope that these powerful words and concepts will actually help to bring the changes which have so often eluded rural development projects in the past decades.

Working for an international seed company I’m regularly challenged to justify our motives and the ‘consequences’ (or perhaps the impact?) of our work. For some incomprehensible reason, seed strikes an emotional chord with even the more progressive NGOs.  Their spirit of being uncompromised by profit often leads NGOs to the somewhat spurious idea that they are more principled than their private sector partners. This obviously brings unnecessary complications into partnerships and compromises the enormous potential of synergy. Of course, this is more often than not an illusion; putting farmers first is equally important to any sound business strategy.

To put matters into perspective, it's interesting to analyse the impact of businesses in poor rural communities;  especially in areas where NGOs have limited presence. Maybe it's even more compelling to look at the reality of benefit sharing. As an example, a few years ago our company introduced a new variety of hot pepper into Myanmar. With increased yields,  tolerance to disease and improved post harvest and marketable qualities it soon became a hit with farmers. Making a very conservative calculation based on information from farmers, traders as well as from our own seed sales, we estimated that the collective annual farm gate income had increased somewhere in the region of USD20-40m. That’s money directly into the local economy - no projects, no partnerships; just commercial activities focused on breeding, variety testing, promotion and distribution. It's interesting to note that the profit to the company is significantly lower - let's just say a couple of percent of this figure.

Developing products, services and markets requires significant investment. Although not advocating the  subsidising of core business, I do believe there are plenty of cases where the cost of commercial activities could be justifiably used as co-funding in joint projects. For many years we’ve been providing extension services to vegetable farmers across SE Asia. We do this to lay down foundations for developing future seed markets. However sharing public goods information simply increases the size of the pie, bringing equal opportunities to all; including competitive companies. If partners and their donors better understood the actual impact of private sector investment, this may lead to improved funding mechanisms and the opportunity to upscale outreach and impact.

*it's somewhat ironic that despite being nonprofit, there is intense competition between development organisations. Competitive markets ensure that farmers benefit from the most innovative products or services. They also serve to keep check; preventing companies from cornering the markets. However there is seemingly no mechanism in place to prevent NGOs from cornering ‘beneficiaries’. The need for inter-project cooperation is possibly far greater than the need to improve public-private cooperation.

This blog is part of the July 2016 series from the Practitioner Hub and Seas of Change on Inclusive Agribusiness. For more insight, updates and opinion view the pdf of the whole series.