ACI Agribusiness sustainable contract farming, Bangladesh
This inclusive business venture is driven by ACI Agribusiness, the agribusiness division of the Bangladeshi conglomerate, Advanced Chemical Industries (ACI) Limited. The project aims to implement a sustainable contract farming model that engages low-income farmers as tomato producers and ensures a sustainable supply of high-quality, affordable crops for ACI
The inclusive business initiative
The business model involves three stakeholders: ACI, low-income farmers and a third party NGO (Practical Action) which has experience facilitating low-income agriculture initiatives with smallholders. Under this model, Practical Action gathers the groups of farmers under Rural Sales & Service Centres (RSSCs), assists them in leasing land and oversees the cultivation process, while ACI provides all agricultural inputs (machinery, seeds and fertiliser) to the RSSCs on credit. Under Practical Action’s supervision and using ACI’s inputs support, farmers will cultivate tomatoes, which are then bought by ACI Cropex, another division of ACI. Profits are then distributed amongst the farmers by the RSSCs based on an agreed pricing model. Based on initial estimates, the scheme could engage around 80 low-income farmers during the first year of implementation and reach up to,5,000 by the third year of scale-up ACI's revenue model for this project is a profit-sharing contract farming scheme.
This venture is driven by a number of commercial opportunities. It gives ACI access to a new and untapped customer base by engaging farmers who could not otherwise afford their products (agricultural inputs) and goes some way to ensuring future loyalty amongst those farmers who may in future use ACI inputs once they become independent. The model also gives ACI Cropex quality control and ensures high quality tomatoes for ACI's customer base and for use in crop-based products.
The landless farmers that this venture aims to reach are currently obliged to lease land to grow their crops on. They have no formal access to production finance and often see it as too risky to invest in high quality seed and inputs in the face of uncertain market prices. Through ACI's venture, these farmers could benefit from training on optimal fertiliser use and cropping practices, high quality inputs, affordable production finance and a guaranteed market for their produce. Based on financial analyses conducted on 100 acres of tomato crops, ACI predicts that farmers could see a 30 percent increase in their incomes under this model.
Objectives of Facility engagement (May 2012)
The Business Innovation Facility's support to this project focused on refining and testing the business model, identifying a partner NGO and creating a robust commercialisation plan. In addition to helping with an initial study of the business model, the Facility also aims to support the implementation of the pilot phase and tweak the model where needed.