WFP recently bought almost 19,000 metric tons of food produced by smallholders in Ethiopia. With a value of more than US$6 million, this is WFP’s largest contract with P4P-supported farmers' organisations to date. A key to the successful deliveries has been the forward delivery contracts, enabled by a successful collaboration between donors, banks, farmers’ cooperatives, NGOs and the government.
Ethiopia has one of the most ambitious P4P programmes in the world. During the past year, WFP bought more than 100,000 metric tons of food in the country, its largest local purchase in Africa. One of the biggest deliveries – almost 19,000 metric tons of maize – was recently completed by P4P-supported smallholder farmers in 16 cooperative unions.
“Our food assistance is reaching millions of people in Ethiopia every year, and if we can use our purchasing power to make long-term changes to build resilience in Ethiopia, then we will truly be useful here,” said Abdou Dieng, country director for WFP Ethiopia.
Smallholder farmers in Ethiopia, Africa’s second most populous state, typically tend to less than two hectares, and make up 70 per cent of the country’s labour force. Abdallah Dari is a smallholder farmer who, after saving enough maize to feed his family, sold the surplus to the Medet Boditi Cooperative Union in the Southern Nations, Nationalities and People’s Region (SNNPR).
“I have sold 1,000 kg of maize this year and did not need to walk for one and a half hours as before to reach a market” he said.
Donor flexibility crucial for the success
The success of P4P deliveries in Ethiopia derives largely from the excellent partnership between all those involved in working towards agricultural transformation, including international donors such as Britain’s Department for International Development (DFID), and an Ethiopian bank. Thanks to a multi-year funding agreement with WFP, DFID is committed to an annual contribution of GBP20 million. This allowed WFP to sign forward delivery contracts with 16 Cooperative Unions for the 2013 growing season.
“It is quite simple: without the three-year advanced contribution that we got from DFID, we would not have been able to do this,” said Abdou Dieng.
Shaun Hughes, head of livelihoods and humanitarian team at DFID Ethiopia, said this kind of funding was more cost-effective.
“It promotes local production and allows WFP to buy food at a better price than in the middle of a drought when prices are at their highest. It also makes sense environmentally as the food is produced nearby,” Hughes said.
Access to loans allow smallholders to invest
Banks have also played a critical role. The Commercial Bank of Ethiopia (CBE), WFP and cooperative unions signed an agreement allowing the latter to obtain loans to purchase and aggregate maize directly from the farmers.
“Not only did this loan allow us to buy maize and increase our sales to WFP from 400 metric tons last year to 2,500 metric tons this year, it also helped to create market access for these farmers and train us about quality and storage of the grains,” said Kalifa Ossero, manager of the Melik Cooperative Union in Warabie town, in the Silti zone of SNNPR.
ACDI/VOCA, a USAID-funded economic development agency, helped negotiate and draft the contract signed with CBE.
“This is extremely innovative in Ethiopia and the negotiation of the contract will really help in the future”, said Alex Pavlovic, a senior public-private partnership specialist for ACDI/VOCA’s Agricultural Growth Program-Agribusiness and Market Development in Ethiopia.
“Cooperative unions learnt how to draft these contracts but also how to borrow money for the first delivery of maize, for example, and use the payment for this delivery to make the second round possible, rather than getting all the money at once. It was also a good experience for the bank in its relationship with small cooperative unions,” he added.
New contract for next year is already in place
On 27 August 2013, WFP and its Maize Alliance partners in Ethiopia renewed their agreement and launched an ambitious plan to purchase 40,000 metric tons of maize from P4P-supported farmers from 29 cooperative union in 2014.
“The success of local food purchases in Ethiopia also comes from a strong drive from the government. Maize has been identified as one of its key cereals to support Ethiopia’s Growth and Transformation Plan (GTP), under which productivity of major crops is planned to double. Smallholder farmers are essential to this strategy and the P4P approach fits into this plan for all services including training in post-harvest handling facilities, storage, finance and access to stable markets,” said Mauricio Burtet, P4P country coordinator in Ethiopia.
Challenges provide valuable P4P lessons
Throughout the experience of using forward delivery contracts in Ethiopia, P4P has documented many valuable lessons. Shortage of storage capacity in the country has been identified as one of the main constraints as it hinders proper commodity management and leads to high post-harvest losses. Together with WFP, the Government of Ethiopia, through its Ministry of Agriculture and Agricultural Transformation Agency (ATA), has recently begun working on improvements with post-harvest technologies, particularly in the area of grain storage facilities.
Cooperative unions’ lack of credit to purchase and collect food from smallholder farmers in a timely manner has been a main bottleneck. Because of delayed loan disbursement, cooperative unions were unable to enter into the market at the most appropriate time, hence many smallholder farmers decided to sell their crops to other buyers in order to get cash for their immediate needs. For the next season (2013/2014), P4P is working extensively with the Maize Alliance partners to address this issue. One example is a Tripartite Agreement between WFP, the ATA and the Commercial Bank of Ethiopia (CBE) to ensure timely availability of credit. Through this agreement, the cooperative unions are able to receive loans from CBE using their contracts with WFP as a guarantee.