Dispatches from Ghana: (3) A Business Model for Social Change
November 25, 2013
In November 2012, Junko Tashiro traveled to Ghana under an Acumen Global Fellowship to launch Copa Connect, a social venture aimed at integrating smallholding rice farmers into the value chain. In her third report from the field, Tashiro explains the venture she helped launch and its sustained impact.
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The Copa Connect Smallholder Program is an innovative new venture by GADCO, a socially oriented agri-food start-up based in Ghana. The aim of Copa Connect is to connect small rice farmers to Ghana’s growing premium consumer market by integrating them into the value chain of GADCO’s Copa brand rice, thereby breaking the cycle of rural poverty while enhancing Ghana’s food security. In my third report as an Acumen Global Fellow, I focus on the Copa Connect business model and the mechanisms by which it promises to achieve a sustained impact.
When I arrived in Ghana in November 2012, Copa Connect was little more than an abstract idea. In the ensuing months, through hours and hours of discussion with various global partners and a five-month pilot with a local farmer, we were gradually able to develop the strategic, financial, and operational prototype outlined below.
The Copa Connect Mission
Demand for rice is soaring among Ghana’s end-consumers, yet the country’s small rice farmers remain trapped in a cycle of poverty. At the heart of this problem are structural obstacles and disconnects at each key stage of the value chain.
At the production stage, small rice farmers have practically no means of obtaining seeds for the variety of rice that has real market value in Ghana—namely, the premium jasmine rice preferred by urban consumers. Smallholders have inadequate access to basic farm machinery, including the power tillers and tractors needed to prepare the soil for planting. They have limited opportunities to learn about good agricultural practices. Moreover, they have access neither to affordable financing for the purchase of high-quality inputs nor to good extension services needed to boost crop yield.
Further obstacles arise in the post-harvest handling and processing stage. In rice farming, the timing of the harvest is critical to yield, quality, and taste. Farmers need to harvest the rice at its peak, yet they also need to adjust the harvest schedule to weather conditions and the availability of combines and other harvesting equipment. Because newly harvested rice has high moisture content, it deteriorates rapidly unless dried and stored properly. This means that rice farmers need to make post-harvest handling arrangements in advance to ensure that everything proceeds smoothly and expeditiously. Unfortunately, most of Ghana’s small rice farmers lack both appropriate storage space and ready access to drying and milling facilities.
At the market stage, smallholders are cut off from Ghana’s lucrative consumer market. Ghanaian consumers prefer high-quality aromatic rice, with no cracked or broken kernels, and they want it in printed bags under a brand name they know and trust. Ghanaian smallholders have almost no way to meet these demands, and as a consequence they are shut out of the existing domestic premium market.
The mission of Copa Connect is to develop an infrastructure that integrates smallholders into the value chain at each of the abovementioned stages while providing farmers with the skills, know-how, and incentives to produce high yields of high-quality rice tailored to the domestic premium consumer market. The solutions that Copa Connect offers to maximize smallholders’ productivity can be grouped into the three infrastructures described below, according to the relevant stage in the value chain.
As producers of GADCO’s Copa brand rice, farmers participating in Copa Connect are expected to produce the high-grade jasmine rice that GADCO’s customers demand. GADCO purchases the harvested rice from participating smallholders and transports it to its own milling facility, where it is processed along with the rice harvested at GADCO’s large-scale nucleus farm. It is packaged and sold under the Copa brand, indistinguishable from other GADCO-grown rice. What this means is that participating smallholders need to meet GADCO’s exacting quality-control standards.
To begin with, participating farmers are provided with a production protocol designed by GADCO’s team of experts. Copa Connect farmers are required to follow this protocol, which specifies the quantity of various inputs—seeds, fertilizers, agrichemicals—per unit of land and provides a timetable for the entire production process, from planting to harvest, in the form of a daily calendar. In the words of an agronomist on the Copa Connect team, “rice cultivation is a science.” The lifecycle and optimum amount of inputs differ according to the rice variety, and too little or too much of any given input can affect not only the yield but the quality as well. Moreover, different varieties are susceptible to different pests and diseases, and producers need to know exactly what preventive measures to take at each phase of the lifecycle.
The production protocol is adjusted to take into consideration such factors as soil conditions and the presence or absence of irrigation. Almost all Copa Connect smallholders are veteran rice farmers with 10 to 20 years experience, but this is the first time they have used a scientifically based protocol. Until now their timing of inputs hinged more on cash flow than best agricultural practices.
In addition to the production protocol, GADCO provides each of the farmers with a package of inputs customized to suit the size of the plot and farming conditions. This package includes the premium high-yield jasmine rice seed that GADCO has developed and produced on its own nucleus farm, as well as fertilizer and agrichemicals that GADCO procures through its own suppliers. This is important because the fertilizer and agrichemicals available to Ghanaian smallholders on the open market are generally of limited variety and poor quality, often formulated according to outdated recommendations. By partnering with global agri-input suppliers, GADCO has been able to design packages optimally tailored to each participating farm and provide smallholders with quality inputs unavailable to them on the open market.
GADCO procures these inputs directly from the suppliers and supplies them at cost to the Copa Connect farmers. Moreover, although GADCO distributes the inputs when they are needed, it does not require payment from the farmers until after the harvest, when revenues begin flowing in. At that point GADCO deducts the costs of the inputs from the crop price it owes each smallholder. In this way, GADCO uses its leverage with suppliers to procure quality inputs on the best terms possible, while at the same time mitigating smallholders’ chronic cash-flow problems by providing them with pre-financing at zero interest—unlike local money lenders, who typically charge upwards of 50% interest for loans to smallholder farmers.
To ensure that farmers follow the production protocol, GADCO also provides training sessions and extension services that offer technical support throughout the production season. The training, which is offered to groups of 20 to 30 farmers at a time, includes both lecture-style sessions focused on theory and practical sessions held on actual demonstration plots. The extension services are provided by Copa Connect’s own extension officers, who inspect each of the plots periodically and instantly communicate their observations to the GADCO team in Sogakope using a specially designed mobile application. In the event of a problem requiring immediate attention, such as signs of disease or flooding from heavy rains, farmers are able to contact the extension officers in a timely fashion, and the GADCO team assists with troubleshooting. Mobile computing technology is used to record and store basic information on each of the participating farms, along with up-to-the minute data on the cultivation process and use of inputs, which the GADCO team in Sogakope monitors on a regular basis.
Mechanization was not included in the scope of the Copa Connect pilot, which ended in March 2013. Since entering Phase 1, however, the program has begun providing participating farmers with access to basic farm machinery in some locales. The idea is to gradually increase capital investment in farm machinery and intensify the level of services provided to farmers as the program grows. We already know from the results of the pilot that even without mechanization, the basic services provided thus far—production protocol, input packages, and training and extension services—have a significant impact on outcomes (as will be discussed in detail in my fourth and final report). Moreover, we know that the essential first step for farmers is to change their mindset and acquire new knowledge and skills in order to replace entrenched habits with best agricultural practices. For these reasons, the Copa Connect program’s current approach is to focus first on basic services.
Processing and Logistics Infrastructure
As soon as the crop is harvested, GADCO sends out its team members to purchase the produce from the smallholders at the farm gate. The unhusked rice paddy is then transported to GADCO’s large-scale modern plant in Sogakope, which handles each stage of processing from drying and husking to polishing and packaging. Collecting the rice paddy from the farms promptly after the harvest minimizes post-harvest losses. In the course of about one month of processing, the smallholders’ crop is transformed into a marketable high-value-added consumer product under GADCO’s Copa brand.
In the Copa Connect business model, farmers receive payment from GADCO immediately after they hand over their crop at the farm gate. Small rice farmers must shoulder a variety of costs throughout the production process and are often strapped for cash by the time the harvest arrives. Yet Ghana’s small farmers must typically wait several months to receive payment from their buyers in the open market. In terms of cash flow, the Copa Connect instant payment system is therefore another important upside for smallholders.
The rice that GADCO purchases from smallholders is mixed with the rice from GADCO’s nucleus farm and sold on the domestic premium market as Copa brand rice. Prior to launching Copa Connect, GADCO had already established a strategic partnership with Finatrade—a leading distributor of agri-commodities in West Africa—for the distribution of rice produced from the GADCO nucleus farm. Through their participation in Copa Connect, the smallholders are now able to take advantage of this distribution platform.
GADCO earns its business revenues from the sale of high-grade Copa brand rice at premium prices to its distribution partner. Each of the Copa Connect farmers receives a share of these profits in accordance with their output.
Mechanism for Recurring Impact
The solutions described above are provided to each of the farmers, at cost, in the form of a comprehensive package of inputs and services. Through Copa Connect, GADCO aims to break the cycle of rural poverty in Ghana. However, Copa Connect is not a charity but a business undertaking. The participating smallholders are producers of Copa brand rice and GADCO’s business partners. If GADCO is to transform the livelihoods of Ghana’s smallholders over the long term, Copa Connect needs to generate revenues on an ongoing basis. Let us now look more closely at the mechanism by which the Copa Connect business model seeks to make a sustainable impact on livelihoods of smallholders.
The smallholders who take part in Copa Connect receive two types of payment. The first is the purchase price GADCO pays for the rice paddy immediately after harvest. The second is the so-called market premium, which reflects the profits GADCO earns from the sale of processed rice destined for the end-consumer market.
The first thing GADCO does when purchasing rice from a participating small farm is to inspect the produce and set a price on the basis of its grade. Barring bad weather or some other circumstances beyond their control, smallholders who follow GADCO’s production protocol and the guidance of its extension officers can expect to receive the highest grade. GADCO’s purchase prices are benchmarked against open market prices and are set somewhat higher than the norm. Since the purchase price is set without regard to quality on the open market, farmers outside of the Copa Connect program have no incentive to produce high-grade rice. By contrast, GADCO’s combination of quality control and price incentives fosters discipline and business sense among smallholder producers.
Moreover, a farmer who participated in the Copa Connect pilot had substantially higher yields than those who did not. Since the amount each farmer receives for the harvested rice is a function of the purchase price and weight, it goes without saying that a substantial increase in yield translates into a jump in the payment received at the farm gate. As noted above, farmers receive this payment directly from GADCO at the time of pickup. The cost of the input package and other Copa Connect services across the product lifecycle are deducted from the payment at this point. This system simplifies the recovery of costs for GADCO while minimizing cash flow risk for each farmer.
The market premium, which is paid later, is essentially a special bonus for the Copa Connect smallholders. Because Ghana’s small rice farmers are cut off from the domestic end-consumer market, they usually receive nothing but the purchase price of the unprocessed rice after harvest. In addition, the smallholders generally depend on monopolistic local intermediaries known as “market mommies” to get their rice to the open market. This makes them prey to unfair pricing. The market premium, by contrast, represents GADCO’s unique revenue-sharing commitment to smallholders. Only by partnering with GADCO can Ghanaian small rice farmers share in their product’s value added in this way.
Higher yields, better quality of produce, and a share of the profits through the market premium are obvious ways in which Copa Connect improves the economic livelihoods of smallholders. But an even more important aspect of the program is the way it is rationalizing the value chain through vertical integration, thus maximizing the profits that GADCO can return to its smallholder producers. As I mentioned in the first of my dispatches, in Ghana’s highly fragmented rice value chain, the smallholder producers are left with a tiny slice of a very small pie. At this point, GADCO is the only player in Ghana that has a full command of every phase of the rice value chain, from research and development to sales.
Over the years, many governmental and nongovernmental entities have intervened in an effort to improve the livelihood of smallholder farmers. Some have even tried to tackle the problem through a value-chain approach, but the best they were able to achieve was a 20%–30% increase in net farm income. By leveraging GADCO’s market-based platform, Copa Connect has the potential to double or even triple the farm income of Ghanaian smallholders (as will be discussed in greater detail in the next and final installment).
Partners for Change
GADCO is not the world’s first agri-food business to integrate smallholder producers into its value chain, but the obstacles to such efforts remain formidable. Operators like GADCO need time and capital, particularly at the early stage, to expand and put their business on a profitable footing. They also need partners willing to share the risks of such an investment. But attracting long-term capital to a high-risk smallholder business is no easy matter.
This is why Acumen, with its “patient capital” and long-term collaboration with social entrepreneurs, is so important to start-ups like GADCO and programs like Copa Connect. Patient capital is a new type of investment oriented to long-term social impact instead of short-term financial gain. Acumen is one of several “impact investors” who have supported GADCO from the beginning as it worked to correct the distortions in Ghana’s rice market by fixing the fragmented value chain.
Copa Connect has forged partnerships with global suppliers to build a strong value chain for smallholder-produced premium jasmine rice. Sygenta, a Swiss-based global agribusiness specializing in crop seeds and agrichemicals, has collaborated with GADCO to develop new high-yield varieties of premium jasmine rice while providing quality agrichemicals currently unavailable on Ghana’s open market for use by Copa Connect smallholder producers. The Norwegian firm Yara, the world’s biggest nitrogen-based fertilizer manufacturer, supplies Copa Connect participants with quality fertilizer and draws on a wealth of knowledge and experience to provide formulations tailored to the soil and growing conditions on Ghana’s small farms. In agreeing to supply GADCO with such inputs on credit, these firms take on a significant risk, since it will be six months before the rice is harvested, shipped, and sold for a profit on the consumer market. And because these partners have stepped in to share the risk, GADCO is able provide smallholders with necessary inputs without collecting payment until after the harvest.
Other partners have provided crucial technical support for the launch of Copa Connect and the ramp-up of its effective business operations. The Syngenta Foundation for Sustainable Agriculture, dedicated to raising productivity of small farmers in the developing world, has been especially helpful in providing support for irrigated smallholders. The team of experts that the foundation periodically sends to Ghana collaborated with the Copa Connect team to design production protocols and technical training for participating farmers. Moreover, the mobile technology developed by the Syngenta Foundation for small farmers has contributed immeasurably to the program’s ability and efficiency to monitor progress and conditions on participating farms. The Washington-based ACDI/VOCA, meanwhile, has assisted with efforts for rain-fed farmers. Tigo Cash, Ghana’s pioneering mobile payment service, is providing the technology for efficient cash transfers to smallholder producers while contributing to the development of Ghanaian society by promoting financial inclusion and ICT literacy. GADCO has also entered into a three-year partnership with the World Bank to conduct randomized controlled trials aimed at scientifically assessing the impact of Copa Connect on smallholder farmers.
The interconnected tasks of pitching the Copa Connect idea to partners, negotiating terms, and refining the business model through a process of trial and error were critical to the program at the start-up phases, and these were the tasks that absorbed the bulk of my time and energy as I worked to build a system capable of catalyzing a paradigm shift and exerting a sustained impact on people’s lives. It was an immensely worthwhile mission that taught me the value and the thrill of joining forces with others and working in tandem to bring about catalytic change.