Enabling Agribusiness Growth and Job Creation through Innovation Centers

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1 Enabling Agribusiness Growth and Job Creation through Innovation Centers International Workshop on Investing in and Strengthening Agricultural Innovation Systems Washington, DC - May 30, 2012 Ellen Olafsen, Program Coordinator, infodev

2 infodev A trust funded program in the Financial and Private Sector Development Network Promoting the start-up and growth of innovative enterprises A global network of 390+ business incubators and 28,800 enterprises

3 Organically growing community of incubators focused on agribusiness Can we better leverage our experience to promote agribusiness innovation?

4 Business Incubation A pro-active, comprehensive service offering that aims to accelerate the growth of SMEs Business Services: Financing: Services Registration, licenses, QM, technology transfer, accounting, strategy, marketing, export/import, etc. Brokering financial services and/or providing them i.e. equity, credit, guarantees, etc. Value to the Entrepreneur Help with non-core business activities saves time and money Leveraging the credibility of the incubator & the portfolio of entrepreneurs to overcome financing gaps People Connectivity Infrastructure: Mentoring, coaching and interaction with fellow entrepreneurs (a micro cluster), market linkages Lab and production facilities, Office space, meeting rooms, electricity, phone, Internet, etc. Learning, exchange of ideas, psychological support, partnerships, business relationships, 4 Economies of scale decreases the cost of starting a business

5 An Innovation and Entrepreneurship Eco-System Infrastructure Social and Economic Wealth Creation Financiers Policy Regulation Standards Markets Invention Incubators Academia Technology Parks Industry Entrepreneurs 5

6 Complementary approaches for agribusiness development Large scale investment SME incubation Value chain development Support to farms Job creation Income generation Improved rural livelihoods Net foreign exchange gain Tax revenues Etc

7 Agribusiness Incubation Assessment Purpose Has agribusiness incubation worked? What lessons can be learned? 10 cases in 9 countries: Brazil, Chile, India, Indonesia, Malaysia, Mexico, Mozambique, South Africa and Uganda MLSC F TIMBALI

8 Varied maturities, models and sizes Age: 5-35 years of operation Sizes: Initial investment of USD 50k-50m Annual operating budgets of USD 20k 40m (most +/-$400k) Varied models: Mixed Use Sub-sector development i.e. salmon, blueberries Technology transfer rural/urban/int. Research commercialization i.e. seeds, fertilizer

9 Aggregate Outcomes: 300+ new businesses created or scaled total revenue of 512 million average sales of the businesses from USD 30K to 5m several thousand jobs not everyone keeps track Rough public ROI from 1:0 to 1:8 to 1:21++ Catalytic impact copycats Policy/access to finance changes Sustainability: 0-80% based on brokerage fees, franchise fees, consulting services, profit sharing, capital gains

10 Fundación Chile: Incubating sectors Identify high growth potential sub-sector Develop/import technology Adapt technology Incubate firms Diffuse tech results Berries, asparagus, rapseed, fruit juice, babyfood, etc. Creating a Salmon Sector 347 tons in ,000 tons in ,000 tons in 2010 US$ 2.2 billion in exports for /- 30% of Chile s total food exports +/ direct and indirect jobs created 60% of jobs are in value addition

11 Timbali South Africa: Value Chain Integration Farmers apply Screening for growth potential Pre-incubation Incubation Mpumalanga: 2m below poverty line Beneficiaries of the incubator earns USD 23,000 annually 350 jobs created in the last year alone! 140 successful franchises since 2007 Agreements w 3 multinationals + Woolworths Creation of science park (fertilizer, product testing, etc.)

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13 Bogor University, Indonesia: Mixed Incubation Entrepreneurs apply Screening for growth potential Incubation Diffuse results 30 p.a. 8 p.a. 27+ IPB has assisted over 80 enterprises: sales USD 4k 2m Stimulated Creation of fund for incubatees 87% repayment rate Entrepreneurship curriculum at university Government policy and program on incubation

14 Indonesia South Africa Latin America

15 Lessons Learned Start with the market Proactive market opportunity identification? Understand the value chain Selective or broad incubation? Commit to demonstrating and catalyzing innovation Business incubation basics

16 Incubation Basics Leadership with business mindset & excellent agricultural market knowledge Aligned incentives between manager and entrepreneurs Lean staff complemented by strong partnerships and dense networks Strong selection process - identify high growth potential entrepreneurs Performance driven contractual relationship between incubatee and incubator Pro-active, comprehensive assistance Public-private partnership structure Networking amongst enterprises watercooler effect Mentoring and coaching Location, location, location Institutional framework that allows learning by doing Strong capital structure

17 Constraints and Limits of Incubation Budget size + risk appetite + time constraint of donor Policy and regulatory constraints/distortions Infrastructure transport (roads, ports, trucks), electricity, cold chains Primary production risks weather, pests, etc.

18 Thank you! Ellen Olafsen Global Assessment of Agribusiness Incubation Agribusiness Incubation Training Agribusiness Innovation Centers Ethiopia, Tanzania, Mozambique, Senegal

19 Our entry point(s) in the value chain Input suppliers Wholesalers Farmers Wholesalers Agro processors Closer to the market, less risk averse Backward linkages through increased demand Retailers Consumers

20 Agribusiness Innovation Centers in Africa Role Accelerate the growth of value adding agribusiness enterprises Commitment to demonstration effect that can catalyze wider business take-up of innovations Focus on select value chains for maximum impact Service Offering Identifies market opportunities for products derived from high quality raw materials; Promotes successful enterprises and stimulates broad take-up of product and process innovation; Assists high growth potential agribusiness SMEs with: adopting technologies and resolving technological challenges; test marketing innovative products; effectively packaging, marketing and distributing final products; linking into relevant supply chains; meeting modern food safety and quality standards; obtaining regular access to adequate quality and quantity of raw materials; enhancing managerial and technical skills, and raising finance to position the enterprise for growth.

21 AIC Service Offerings Advisory Facilities Market Access Finance Facilitation Linkages INNOVATION Business training Technical training Processing and packaging plant Demonstration centre Market research Product Market Seed fund Government Industry Technology identification Quality & safety Offices and product storage Market linkages Local National Export Finance linkages Universities/R&D Procurement support Coaching & Mentoring Business Center Donors

22 Highly Networked Structure Industry Financiers Market Linkages Financing/Dealflow Government Policy Dialogue AIC Dealflow/product development Academia Entrepreneurs Farmers

23 Senegal Market Opportunity Domestic, regional and international demand for products derived from fruits including Bissap, Baobab, Mango, Tomato, Papaya, Tamarin Market Challenge The few large firms import fruit products that could be sourced domestically due to issues with quality, quantity and regularity. Small processors do not grow due to constraints including: limited access to technology difficulty accessing finance lack of procurement leverage inability to standardize and test quality lack of knowledge of higher value opportunities Potential Impact of AIC Over 5 years: Direct Result: 100 highly competitive companies 1700 new jobs created in processing Increased income for 1,300 farmers Indirect results: catalytic effect + jobs in support services such as trucking, package and labeling production, input + machinery suppliers Partner Interest 80% women Prime Minister, Ministry of Economy and Finance, Ministry of Agriculture Accelerated Growth Strategy, CBAO Bank, Technical Institutes, large industry GIZ, IFC, AFD + Complementary World Bank project focused on primary production

24 Tanzania Market Opportunity Edible and essential oils derived from sunflower seeds, soya beans, spices,fruits. Market Challenge Small processors do not grow to become medium and large due to a variety of constraints including: limited access to technology difficulty accessing finance lack of procurement leverage inability to standardize and test quality lack of knowledge of higher value opportunities Potential Impact of AIC In a 5 year period: Direct result: 125 highly competitive enterprises and 1250 new jobs created in processing Increased incomes for 1000 farmers Indirect results: catalytic effect + jobs in support services such as trucking, package and labeling production, input + machinery suppliers Partner Interest Ministry of Industry and Trade, Ministry of Science and Technology, Mandela Institute, Horticulture Association DANIDA, USAID + complementary World Bank project focused on primary production 80% women