Improving the Bottom Line in Agriculture: How FTF Inova Built the Business Case for Investment in Smallholders in Mozambique

February 10, 2022

This blog outlines the rationale behind the business cases developed through the USAID Mozambique Feed the Future Agricultural Innovations Activity (FTF Inova).

Why Does Mozambique’s Agricultural System Need Private Sector Investment?

Despite remarkable GDP growth over the last three decades in Mozambique, economic growth has yet to translate into significant poverty reduction gains, with over 60 percent of the population still living in poverty. This is especially the case in rural areas, where more than 70 percent of poor households live, and who rely on subsistence farming as their primary source of food and income[1]. Although agriculture continues to be the mainstay of Mozambique’s economy, the sector’s performance remains sub-optimal, thereby curtailing its competitiveness and contribution toward economic prosperity.

These persisting challenges include the adverse impacts of weather-related events, lack of availability and access to quality inputs and technologies, soil degradation and low fertility, and limited access to extension services, credit, and markets. Collectively, they have resulted in low levels of productivity for Mozambique’s agriculture sector. With an estimated 4.3 million smallholder farmers accounting for 95% of the country's agricultural production, strengthening the smallholder farmer sector is paramount to achieving long-term, sustainable, inclusive agricultural growth in Mozambique[2]. Private sector engagement and investment is critical to sustainably achieving this goal.

What Kind of Private Sector Investment in the Smallholder Segment Makes Sense?

There is untapped potential to reach millions of smallholders in Mozambique as buyers of inputs and suppliers of produce. Critical investments are needed in new distribution channels that can reach farmers in inaccessible rural areas, bolstering the reliability of the supply chain, improving crop quality and productivity, and increasing the application of inputs. Still, perceived financial and social risks often deter businesses from investing in adapting their business practices to target smallholder farmers.  

In response to this, the Feed the Future Mozambique Agricultural Innovations (FTF Inova) project, implemented by DAI and partners TechnoServe and MarketShare Associates, partnered with local private sector firms to pilot innovative and inclusive business models that would generate win-win outcomes for producers, consumers, and enterprises alike. Given the perceived risks of inclusive business models, particularly in the context of Mozambique where innovation is constrained by lack of finance, trust among commercial actors, and information about investment opportunities, FTF Inova endeavored to demonstrate how inclusive business practices can create shared value.  FTF Inova reduced the risk of investments in the smallholder segment by creating deals the private sector to provide support for piloted innovations. As part of the co-investment, FTF Inova developed business cases to showcase how agri-focused business innovations can generate an array of commercial and social benefits.

Why Did FTF Inova Develop Business Cases?

A business case typically presents the rationale for pursuing a different practice, service, or product. FTF Inova developed business cases to explain a prevailing business model being applied, the new opportunity, what options were explored, the value proposition for smallholders and others, the timeline, ROI, recommendations, and risks going forward.  

The FTF Inova business cases offer tangible proof that enterprises can profit from investing in addressing challenges experienced by smallholder farmers. The profiled innovations empowered farmers and increased their incomes while also generating returns on investment.

The cases illustrate the economic viability of business innovation and technologies promoted, which, in turn, can help private sector partners make more informed investment decisions. The development and sharing of these cases (including the infographics to attract attention) are particularly relevant given the novelty and lack of evidence in Mozambique of the financial returns of the promoted innovations, and the value of tailoring products and services to meet smallholder farmers’ needs.

Although the business cases largely focus on the incentives that drive different partners’ behaviors – most of which are financial – they also demonstrate the potential social returns. For example, when local company Casa do Agricultor (CdA) established a regular distribution system to ensure local farmers had easy access to inputs like seeds, not only did the company’s sales increase and transportation costs decrease, but they enabled 17,000 farmers to gain access to improved seeds that would help them increase the productivity and quality of their harvests.

As the overarching intent of these business cases is to capture and communicate the social and business outcomes of inclusive business models for replication and adaptation within the private sector, business case data is intentionally presented and packaged in a way that “speaks” to the business community using commercial language and data that resonates with enterprises’ interests and incentives. By showcasing new ways of thinking and operating, FTF Inova aims to encourage companies in the private sector, as well as the government and development community, to examine and implement inclusive and innovative ways of doing business.

The FTF Inova business cases can be found here.