The Next Billions:Business Strategies to Enhance FoodValue Chains and Empower the Poor

COMMITTED TO IMPROVING THE STATE

OF THE WORLD

Prepared in collaboration with The Boston Consulting Group

World Economic ForumJanuary 2009

The views expressed in this publication do not necessarily reflect those of the World Economic Forum.

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© 2009 World Economic ForumAll rights reserved.No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying andrecording, or by any information storage and retrieval system.

All photographs by Brent Stirton, courtesy of Getty Images.

REF: 150109

Contents

Preface 4

Executive Summary 6

Chapter 1 – Introduction 9

Chapter 2 – Understanding the Food Value Chain 11

2.1 A major opportunity 11

2.2 Overview of the food value chain 12

2.3 Diversity in food value chains 13

2.4 Turning a vicious cycle into a virtuous cycle 13

2.5 Business opportunities along the food value chain 15

Chapter 3 – Solutions to Unleash the Potential of Producers and Consumers 17

3.1 Business solutions for producers 18

3.2 Business solutions for consumers 25

3.3 The case for holistic solutions 28

Chapter 4 – Empowering Entrepreneurs through Business-enabling Products and Services 30

4.1 Providing Market Information 30

4.2 Increasing Access to Financial Services 32

4.3 Overcoming Infrastructure Gaps 36

Chapter 5 – Unleashing Potential: Design Principles for Success 39

5.1 Create life-enhancing offerings 40

5.2 Reconfigure the product supply chain 41

5.3 Educate through marketing communication 42

5.4 Collaborate to form non-traditional partnerships 43

5.5 Unshackle the organization 45

Chapter 6 – Conclusion: Key Actions for Scaling up 47

6.1 Strengthening incentives for business engagement 47

6.2 Prioritizing and sequencing business initiatives 48

6.3 Providing complementary funding and capacity 48

6.4 Facilitating corporate engagement 48

6.5 Establishing models and building momentum 49

6.6 Collaborating to accelerate progress 49

Terminology 51

References 52

Appendix 1: Methodology for Estimations of Population and Income 55

Appendix 2: Case Study Selection Process 59

Appendix 3: List of Case Studies Cited 60

Appendix 4: Actions for Scaling Up Business Models 63

The World Economic Forum is pleased to presentthis report on innovative business models that canimprove sustainable food production and help toreduce poverty in developing countries.

For the past four years, the Forum has served as aplatform for leaders to define and work together onbusiness-led and multi-stakeholder solutions forsustainable food production. Our activities includefacilitating multi-stakeholder leadership actionthrough the Global Agenda Council on FoodSecurity; undertaking the research and thoughtleadership seen in this and other reports; andfacilitating the Business Alliance Against ChronicHunger which is implementing on-the-groundsolutions in Kenya. This portfolio of work ischampioned by the Forum’s Consumer Industriescommunity with support from the Bill & MelindaGates Foundation. We greatly appreciate the GatesFoundation’s support for preparation of this report.This project was based on a broad research surveyplus three cross-industry, multistakeholder

roundtables conducted in Latin America, Africa andAsia during 2008. The research survey includedreview of 60 reports and collection of 200 casestudies from primary and secondary sources. Theroundtables provided ground-level insights frompractitioners – ranging from multinational andregional companies to social entrepreneurs – whoare pioneering these business models on theground.

The report documents a series of commerciallyviable business models that have proven effective atstrengthening food value chains in developingcountries, and offers recommendations for scalingthem up. It presents examples of specific businessapproaches that can engage poor producers,consumers and entrepreneurs along the food valuechain. It outlines design principles for companiesinterested in developing such initiatives, andsuggests actions that all stakeholders can take tofacilitate expansion of these business approaches.

Preface

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Our conclusion is that the kinds of business modelsoutlined in this report offer substantial potential fordriving economic growth and food production,benefiting both companies and poor communities.Undertaken by global and local companies – often inpartnership with other organizations – they representthe highly dynamic business innovation and growthwhich is rapidly evolving in “base of the pyramid”(BOP) markets. The report builds on and intends tocomplement the work of thought leaders in thisarena such as C.K. Prahalad’s Fortune at theBottom of the Pyramid, the World ResourcesInstitute and IFC’s Next 4 Billion report, HarvardUniversity’s industry-specific Economic Opportunityreports, and the United Nations DevelopmentProgramme’s Growing Inclusive Markets initiative. Italso draws from leading works in the agriculturalarena by the World Bank, the International FoodPolicy Research Institute (IFPRI), and the UnitedNations Food and Agriculture Organization (FAO).

This report project was prepared by the WorldEconomic Forum in partnership with the BostonConsulting Group. Lisa Dreier led the initiative at theForum together with Jennifer Baarn and Pial Islam,with input from Helena Leurent, Sarita Nayyar,Cornelia Roettger and Rick Samans. The Forumwishes to thank the Boston Consulting Group for itswork, which was led by Arvind Subramanian, AnandRaghuraman and Nimisha Jain with Neetu Vasantu,S. Rajagopal and Marije van Mens.

The report reflects extensive inputs, discussion andreview by a number of Forum partners and experts,to whom we are greatly indebted. Corporatereviewers include: Marco Ferroni of SyngentaFoundation, Willem Jan Laan of Unilever, ChristianMaas of Metro Cash & Carry International, SusanMorgan of BT, Herbert Oberhaensli of Nestlé S.A.,Mara Russell of Land O’Lakes, Chris Shea ofGeneral Mills, Gabriel Solomon of the GSMAssociation, Christina Ulardic of Swiss ReinsuranceCompany, and Steve Yucknut of Kraft Foods. Non-business and expert reviewers include: Marc vanAmeringen and Bérangère Magarinos of the GlobalAlliance for Improved Nutrition (GAIN), Andrew Aulisiof the World Resources Institute (WRI), Alain deJanvry of the University of California at Berkeley,Jane Nelson of Harvard University, Richard Rogersof the Bill & Melinda Gates Foundation, MirjamSchoening of the Schwab Foundation for SocialEntrepreneurship, and David Spielman of theInternational Food Policy Research Institute (IFPRI).Harvard University, the World Resources Instituteand the Schwab Foundation for SocialEntrepreneurship also served as independentreviewers of the case study selections for the report.

During 2008, the global food crisis starkly illustratedthe urgent need to develop sustainable solutions forfood security and economic growth benefiting allstakeholders, including the poorest. The ideas in thisreport intend to contribute toward that larger goal.

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Richard SamansManaging DirectorWorld Economic Forum

Sarita NayyarSenior Director, Consumer IndustriesWorld Economic Forum

Overview

Business actions to strengthen food value chains indeveloping countries fulfil two vital goals. For theprivate sector, they open up opportunities in agrowing, profitable and largely untapped market. Forpoor communities, innovative approaches canimprove livelihoods. Challenges in the businessoperating environment have historically limitedbusiness incentives to engage in poor regions. Butmany companies are discovering new approacheswhich can overcome such challenges and eventransform them into opportunities.

This report focuses on business models that areproving effective along the food value chain in poorregions. It presents an array of specific examples,outlines design principles that companies andpartners can use to guide new initiatives, andrecommends actions that all stakeholders can taketo scale up effective models.

The Opportunity

Globally, 3.7 billion people are largely excluded fromformal markets. This group, earning US$ 8

aper day

or less, comprises the “base of the pyramid” (BOP)in terms of income levels. With an annual income ofUS$ 2.3 trillion a year that has grown at 8% inrecent years, this market spends US$ 1.3 trillion ayear on food. Around 70% of the BOP (2.5 billionpeople) depends on the food value chain for theirincomes, either directly as small-scale farmers andfarm labourers, or indirectly as small-scaleentrepreneurs.

While it is highly diversified, much of the BOPrepresents a fast-growing consumer market, anunderutilized farming sector, and a source ofuntapped entrepreneurial energy. Engaging the BOPas producers, consumers and entrepreneurs istherefore key to both reducing poverty and drivingbroader economic growth along the food valuechain.

Understanding Food Value Chains

The process of growing, producing and marketingfood involves a variety of industries and stakeholdersalong multiple steps, forming the food value chain.

• Private-sector actors in the food value chaininclude agricultural input companies, farmers(particularly smallholders and women),intermediaries, processors and retailers. Business-enabling services such as telecommunications,financial services, energy and logistics play a vitalrole throughout the chain. Non-businessstakeholders are central to food value chainoperations; these include governments, NGOs,donor agencies and international organizations.

• In developing regions, food value chains areconstrained by limitations related to infrastructure,producer capacity, availability of finance, public-sector capacity, and other factors. Theseproblems often create a “vicious cycle”, in whichlow productivity and a lack of access to capitaldepresses income and consumption, trapping theBOP in a downward spiral of deepening poverty.Coordinated engagement by business and otherstakeholders can reverse this dynamic, creating amutually reinforcing “virtuous cycle” of increasedproduction, consumption and entrepreneurship atthe local level.

Innovative Business Solutions

Businesses can take a holistic approach to the foodvalue chain with specific interventions at three stages:producers, consumers and entrepreneurs.

Business solutions for producersCompanies can deploy a range of innovativestrategies to provide opportunities to BOPproducers. These include:• Develop agricultural inputs targeted to BOP

needs. New product design, and targetedresearch and development, can create offeringssuited to poor producers’ needs and budgets

Executive Summary

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a The US$ 8/day income threshold is in Purchasing PowerParity (PPP) dollars, and was defined by the WorldResources Institute report, The Next 4 Billions.

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• Improve farmers’ access to inputs byexpanding and strengthening rural retail networks,and offering financial services to farmers.Companies can also empower retailers to expandtheir product and service offerings

• Strengthen farmer capacity through trainingand outreach. Input companies can strengthenfarmer awareness of new products andtechniques. Buyers can work with farmers toimprove production and meet quality standards

• Improve supply-chain efficiency throughstreamlined logistics and warehousing, andworking with value-adding intermediaries

• Optimize sourcing processes by sourcing fromlocal producers, commercializing local rawmaterials and creating markets for sustainabletrade in high-value products

Business solutions for consumersCompanies can meet growing consumer demand inthe BOP market through several key strategies:• Design nutritious food for poor consumers,

by offering nutritionally fortified, affordable foodsthat meet the preferences of the BOP

• Expand retail distribution networks byleveraging informal retail and distribution channelsto empower entrepreneurs and expand reach.Reduce delivery costs by partnering with otherbusinesses

• Strengthen consumer demand througheducational marketing strategies, partnershipswith trusted parties, and using certification andlabelling to build consumer trust

Business solutions to empower entrepreneursIndustries such as financial services,telecommunications, energy and transportation areimportant enablers of business activity along foodvalue chains. Companies can develop innovativestrategies to provide needed services in suchmarkets, such as:• Provide market information through

telecommunications applications that helpfarmers access information on market prices andgood farming practices

• Increase access to financial services byadopting innovative strategies to provide credit,savings and insurance for individual farmers;creating mobile cash transfer systems; developingnew novel risk-mitigation instruments; andproviding capital funding for small business

• Overcome infrastructure gaps throughbusiness-led solutions targeted at both hardinfrastructure (storage and transportation, energy,water infrastructure) and soft infrastructure(organizations, policies and regulations thatstrengthen business operations)

Design Principles for SuccessfulBusiness Models

While BOP markets vary widely, companies canadapt successful strategies to specific regions orincome segments. This report identifies a set ofdesign principles that companies and partners canuse in developing effective business models tostrengthen food value chains:• Create life-enhancing offerings: Develop new

products and services that improve livelihoodsand trigger economic multipliers at the BOP

• Reconfigure the product supply chain: Createcost-efficient distribution systems by sourcingfrom local producers and leveraging existing localdistribution channels

• Educate through marketing communication:Design marketing programmes that containeducational as well as persuasive messages

• Collaborate to form non-traditionalpartnerships: To lower costs and broadendistribution, move beyond traditional roles topartner with communities, invest in skill building,and create incentives for self-governance amongBOP business partners

• Unshackle the organization: Design corporateorganizational structures – including metrics,incentives and accountability systems – tosupport, measure and reward long-term successin business initiatives targeting the BOP

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Scaling Up: Key Actions forStakeholders

Scaling up BOP business strategies requires adecentralized and localized approach, in whichsuccessful concepts are adapted for transfer fromone region to another, often with a new set ofpartners and collaborators. Achieving scale in thesebusiness models, therefore, often requirescooperation among many actors includingcompanies, governments, NGOs, donor agenciesand international institutions. Partners can worktogether on several fronts:• Strengthen incentives for business

engagement through boosting incentives,removing barriers and reducing costs that impedecommercial activity. This includes establishingfinancial or market incentives, and improving theenabling environment (policy, infrastructure andservices)

• Prioritize and sequence business initiatives,working with partners to develop key capacitiesrequired for specific business models, andprioritizing high-impact and essential initiatives

• Provide complementary funding andcapacity to overcome gaps (for example in R&Dfunding) and strengthen hard and softinfrastructure required for business models tosucceed

• Facilitate corporate engagement amongdiverse industries and stakeholders, unitingpartners’ complementary capacities aroundcommon goals to reach the BOP

• Establish effective models and buildmomentum, sharing knowledge and highlightingsuccesses to accelerate learning and encouragebroad adoption

• Collaborate to accelerate progress, engagingleaders and “orchestrators” to catalyse andsupport multistakeholder cooperation

The business models discussed in this report havethe potential to create substantial value for poorconsumers, producers and entrepreneurs as well asfor companies. They represent a roadmap fororganizations seeking to take a win-win approach inemerging markets. Companies that establishworkable, profitable and scalable business modelsto include the BOP will secure a strong advantage,both commercially and in terms of community andpartner relationships. Success in the end will requirenew thinking, close coordination and alliancesamong unconventional partners – governments, civilsociety organizations and the BOP communitiesthemselves.

The private sector can play a pivotal role in the foodand agriculture sector. However, in developingregions, where both the need and the potential forincreased production are greatest, it is oftenengaged only peripherally. Expanding sustainablebusiness engagement in these areas could bringsizeable gains to both poor, food-insecurecommunities and the private sector itself.

Globally, 3.7 billion people are largely excluded fromformal food markets. This group, earning US$ 8b perday or less, comprises the “base of the pyramid”(BOP) in terms of income levels. Around 70% of theBOP (2.5 billion) depends on the food value chainfor their incomes, either directly as small-scalefarmers and farm labourers, or indirectly as small-scale entrepreneurs.[1-3] (For a detailed account of themethodology used to reach the estimates in thischapter, see Appendix 1). While it is highlydiversified, much of the BOP represents a fast-growing consumer market, an underutilized farmingsector, and a source of untapped entrepreneurialenergy. Engaging the BOP as producers,consumers, and entrepreneurs is therefore the keyto both reducing poverty and driving broadereconomic growth along the food value chain.

The total income of the BOP is US$ 2.3 trillion (in2008 real terms),c and has been growing rapidly at8% annually in recent years [1-3]. The group spendsover 50% of their income – an estimated US$ 1.3trillion annually – on food. As their income grows,BOP consumers are demanding higher value andmore diverse food, as well as other goods andservices. Many poor producers have the potential tosubstantially increase their production, given access

to inputs and training. The BOP is also host to ayoung and growing population of potentialentrepreneurs, many of whom currently lack theessential tools – such as bank accounts, mobilephones or electricity – needed to start a smallbusiness. These trends represent a set of businessopportunities that cut across industry sectors, fromfood, beverage and agribusiness to retail andconsumer goods, financial and telecommunicationsservices, and others. Those at the BOP who can beprofitably engaged by business – referred to here asthe “next billions” – represent a large, untapped market.

Early movers can establish several advantages inthis growing market. By being first to develop newofferings and innovative delivery channels, companiescan gain valuable insights, secure greater marketshare and win the loyalty of BOP consumers andproducers – a key success factor in this market. Bycreating opportunities for sustainable economic andsocial gains at the BOP, they will contribute to long-term market growth that benefits their investments.In fact, the BOP market offers an attractive meetingground where corporate economic benefit and socialimpact can be realized together.

Chapter 1 – Introduction

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• 3.7 billion people around the world live on annual incomes of less than US$ 3,000 (2002 PPP$). 70% ofthem, or 2.5 billion, live in rural areas where agriculture is often the primary economic activity

• Companies, which often play a limited role in the food value chains of developing countries, can enter thismarket in a way that both meets a social need and creates profitable business opportunities

• This report explores how businesses can achieve this potential, outlining examples of successful businessmodels and basic design principles for operating along food value chains at the base of the pyramid (BOP)

The “BOP” and the “Next Billions”“Base of the Pyramid” (BOP) is a collectivereference to 3.7 billion people populating thelowest income strata in the world. The incomelevels for this group range from 0 to a maximumof US$ 3,000 per person per year (in 2002PPP$), or roughly US$ 8 per person per day.

Within this group are the “next billions” – a largegroup of consumers, producers andentrepreneurs who can be profitably engaged orserved by business, albeit with new andinnovative approaches.

b The threshold for BOP incomes was defined by the WorldResources Institute report, The Next 4 Billions.[1]

c All numbers related to income, expenditure and price inthis report are in current US$, unless stated otherwise.

Despite this potential, the business opportunitiesembedded within the food value chains of poorregions remain largely untapped. A host of issuescombine to prevent, discourage or derail businessengagement. These include fragmented and poorquality food production; difficulty in tappingconsumer demand; and poor infrastructure andgovernance. Surveying this landscape, manycompanies have concluded that their standardbusiness models would not be profitable in such asetting, and they may be right. But the story shouldnot end there.

While many remain on the sidelines, an increasingnumber of companies are developing innovativestrategies to tap into the economic potential thatexists throughout the food value chain. Whethersupplying inputs to farmers, sourcing high-valueproducts from small-scale producers, or developingand retailing an array of new products and servicesthat meet the needs of poor consumers andentrepreneurs along the chain, these companies arefinding approaches that work. Those that aresuccessful are establishing viable business modelsfor an untapped market, while also improving thelivelihoods of the BOP.

What are these companies doing right? And howcan other companies tap the potential of thismarket, while also benefiting the poor? Moreimportantly, how can successful businessapproaches be mainstreamed and scaled up, tohelp drive sustainable economic growth in theregions that need it most?

This report attempts to answer these questions. Itpresents a series of specific business models thatare proving effective along the food value chain;outlines design principles for companies seeking todevelop new models; and recommends priorityactions for all stakeholders interested in catalysingsuch pro-poor business engagement.

Chapter 2 provides an overview of the food valuechain, and maps out the role of business and otheractors in making it work. Chapter 3 presents specificbusiness models that target both producers andconsumers along the food value chain. Chapter 4outlines innovative private-sector approaches thatprovide entrepreneurs and small business at the

BOP with the key tools – such as finance,communications and infrastructure – that areneeded to create an enabling environment forefficient marketing. Chapter 5 presents designprinciples to guide the development of effectivebusiness models in these markets; and Chapter 6recommends ways in which these models can beadapted and scaled more broadly, throughconcerted action by all stakeholders.

This report is a companion to The Next Billions:Unleashing the Business Potential of PoorCommunities, published by the World EconomicForum and The Boston Consulting Group. Thatpublication outlines strategies for “win-win”approaches to poor markets that cut across all industrysectors and regions. Both volumes address thebusiness strategies that can be effective at the BOP,often requiring collaboration or partnership with otheractors. While recognizing that the public sector plays avital role in establishing and managing the enablingenvironment for business operations, both reportslimit their discussion of public sector actions to thosedirectly related to the targeted business models.

The need for both public and private sector action toimprove global food production and food securityhas never been greater. In 2008, as economicgrowth slowed, food shortages and price increaseshad a dramatic effect on the world’s poor. Tens ofmillions of additional people were driven into hunger,bringing the global total close to one billion.Establishing sustainable solutions to this problem willrequire innovation, leadership and cooperationamong all sectors. Through the types of businessmodels outlined in this report, business can becomea catalyst and core partner in advancing sustainablegrowth that benefits poor communities as well asthe bottom line.

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In most developing countries, the agriculture sectoris the largest source of employment and a driver ofeconomic growth. Almost 70% of the poor indeveloping countries – over 2.5 billion people – livein rural areas where agriculture is the main economicactivity[1-3] (for a detailed account of the methodologyused to reach the numerical estimates in thischapter, see Appendix 1). Either directly or indirectly,the rural poor are dependent on the food valuechain. The complexities of the food value chain, andthe inter-dependence of its different components,present both a challenge and an opportunity. Atpresent, food value chains in many poor regions arefragmented and inefficient, making them unprofitableand risky for both the people who depend uponthem for survival, and the companies that coulddrive improvements. As discussed below, acoordinated set of business-led interventions tostrengthen operations throughout the chain can

activate a “virtuous cycle” of mutually reinforcinggains in productivity and consumption, resulting insubstantial income gains for the BOP.

2.1 A major opportunity

The current income of the BOP totals US$ 2.3 trillionand has historically been growing at 8% per year[1-3].The group spends over half of this income – anestimated US$ 1.3 trillion annually – on food. Of the2.5 billion members of the BOP who live in ruralareas, about 60% are directly dependent on a smallfarm for their household income. The other 40% areoften closely linked to the food value chain, eitherthrough business linkages (e.g. as agricultural inputretailers or small traders), or through other means[1-3].Together, these rural members of the BOP accountfor between US$ 850 billion and US$ 1.1 trillion inincome, nearly half of the total BOP income[4-10].

Chapter 2 – Understanding the Food Value Chain

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• The food value chain involves multiple steps and engages diverse actors; its complexity and inter-dependence is both a challenge and an opportunity for business

• A coordinated set of business-led interventions can activate a “virtuous cycle” of productivity andconsumption along the chain, resulting in substantial income gains for the BOP and broad-basedeconomic growth

• With a current income pool of US$ 2.3 trillion and food expenditure of US$ 1.3 trillion annually, the base ofthe pyramid has the potential to significantly grow their incomes over the next decade, given the right setof initiatives

Exhibit 1: 2.5 billion people in rural areas are part of the BOP

Worldpopulation

Rest of theworld

High-incomecountries

Income >US$ 3,000

PPP*

IncomeUS$ 3,000

PPP*the BOP

UrbanBOP

RuralBOP

Rural BOPnon-

smallholderhousehold**

Rural BOPsmallholderhousehold**

Pop

ulat

ion

(bn)

*Income based on annual income per person per year in 2002 PPP$**Smallholder farming households are households of farmers and rural labourers working on a farm of 2 ha or smallerSource: United Nations, World Bank, WRI.

1.7

0.9

3.7

1.2

2.51.0

1.5

6.34.6

0

2

4

6

8

2.2 Overview of the food value chain

The process of growing, producing and marketingfood accounts for most of the activity in theagriculture sector and drives many other parts of theeconomy. It involves multiple steps, engages adiverse set of actors, and depends heavily on theoperating environment, which is influenced byclimate, governance and other external factors.

The food value chain starts with agricultural inputcompanies supplying seeds, equipment and otherinputs such as fertilizers. Farmers procure the inputsand combine them with other resources needed foragricultural production: land, water, finance, labourand knowledge. After harvesting, on-farm orcommunity processing may take place to add valueto the crop. Farmers sell the resulting producedirectly to consumers or to intermediaries, who inturn trade with consumers, food processors ortraders. Industrial-scale processing, packaging anddistribution deliver finished products to consumersthrough retail outlets or other channels. At eachstep, participants depend upon business enablers tofacilitate commerce, such as provision of financialand communications services, and energy, transportand water management infrastructure. They also

depend upon the larger public-sector enablingenvironment, which includes government-providedinfrastructure and services, policy and regulation.Finally, the chain is influenced by the naturalenvironment (including soil fertility, water supply andclimate variations) as well as the larger political andeconomic context.

There are many different participants in the foodvalue chain. To efficiently link consumers, producersand entrepreneurs, food chains require coordinatedparticipation from industry, governments and non-governmental organizations (NGOs). Other groupssuch as research institutions, donors and the mediaalso play key roles.

Because smallholder farmers are the mainagricultural producers in many poor regions, theymerit special consideration from companies andother organizations seeking to enhance business-ledgrowth. Given adequate support to overcome theconstraints that they face, these farmers havesignificant potential to increase their productivity,generating potentially substantial economic gains.Smallholders also represent a large and currentlyunder-served consumer market for relevant goodsand services.

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Exhibit 2: Opportunities for intervention in the food value chain

Business enablers

Consumers Agricultural producers

Food valuechain

Strengtheningbusiness

operations

Providing market information

Improving access to financial services

Overcoming infrastructure gaps

Agriculturalinput

Retail(of agri input)

Agriculturalproduction

SourcingProduct designand processing

Retail anddistribution

Marketing

Public sector and policy environment

Gender is another important aspect of the food valuechain, since in most developing countries womenundertake the majority of food production, processingand preparation. In the developing world as a whole,women produce 60-80% of food[11] but earn 22%less than men and have more limited access to credit,training and land rights[12]. Yet, there is compellingevidence from Burkina Faso and Kenya thatagricultural productivity could be raised by as muchas 20%, simply by reallocating existing agriculturalassets more equally between men and women[13].

2.3 Diversity in food value chains

Food value chains, and the value captured at eachstep, can vary widely depending on the product andthe region. For example, maize grown primarily forfamily consumption has a relatively short value chain,whereas fruit that is harvested, processed and thenexported involves a more complex chain. Valuechains for the same product can also look quitedistinct in different regions.

The diversity of food value chains is driven partly bythe difference between staple crops, high-value andperishable products – since each has differenttransport, storage and processing requirements.

Value chains also vary depending on whether theproduct is for commercial or subsistence use and forlocal or international markets. Lastly, the assets andcapacities of the farmer and the intermediaries withinthe chain heavily influence the value that is capturedat each step. The graph below illustrates the varietyof value capture in several food value chains.

This report discusses the basic steps in food valuechains in broad terms, but does not discuss differentiationin great detail. Instead it focuses on business-ledsolutions to constraints that are common across awide range of food value chains involving the BOP.

2.4 Turning a vicious cycle into avirtuous cycle

Communities in poor, rural regions face numerouschallenges and constraints to increase their incomesand engage with the private sector. These include alack of basic or efficient infrastructure, essentialservices, education systems and regulatory regimes.These constraints affect the livelihoods of the BOPas they participate in the food value chain asagricultural producers, consumers andentrepreneurs, often acting in two or more of theseroles simultaneously.

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Exhibit 3: Examples of diversity in food value chains

Yam value chain, Ghana

Kaja Apple value chain, Pakistan

* Value added = price received by actor – price paid by actor.Source: Yam value chain, Ghana: KIT + IIRR; Kaja apple value chain, Pakistan: Asian Journal of Plant Sciences; Cocoa value chain,Ivory Coast: Department of Agricultural Economics, Purdue University

*

Cocoa value chain, Ivory Coast

Producers often lack access to inputs and inputretailers, support services, credit and the knowledgethey need to boost production. They are also highlyvulnerable to risk, such as climate shocks (floodsand droughts) or pests and disease outbreaks, andhave limited access to risk reduction strategies or“safety nets”. They are therefore cautious aboutinvesting in new ventures. In many areas they cannotaccess storage, processing and distribution facilitiesand suffer high transaction costs and large post-harvest losses. With little information, resources, orbargaining power, they face substantial barriers toaccessing markets and securing fair prices. As aresult, many small-scale farmers are trapped in low-input, labour intensive, low-yielding farming systems.

Consumers at the BOP also present a challenge tobusiness investment. They have low and volatileincomes and little access to credit facilities. As aresult, they are highly price sensitive and risk averse.They spend upwards of 50% of their householdbudget on food. Their choices are constrained by alack of information and the cost or lack of access toneeded inputs. Similar challenges face potential

entrepreneurs at the BOP, who generally have littleaccess to the training, information and finance theyneed to realize their business goals.

These problems often create a “vicious cycle”, in whichlow productivity and a lack of access to capital trapsthe BOP in a downward spiral of deepening poverty.This limits demand for consumer goods andopportunities for entrepreneurship in BOP communities.To reverse the vicious cycle, companies can developstrategies to engage the BOP as producers, consumersand entrepreneurs. Strengthening and enablingthese different roles can create a mutually reinforcing“virtuous cycle”. For example, a successful producerwill direct surplus income towards increasedconsumption, benefiting local entrepreneurs such asretailers of consumer goods, agricultural inputs andtelecom services. In addition to alleviating povertyand hunger, productivity gains and increasedincomes allow farmers to invest in the future of theirfarms (e.g. improving soil fertility or diversifying intolivestock enterprises), improve their family’s diet andhealth, and educate their children, all of which buildthe family income-generating potential still further.

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Exhibit 4: Targeted interventions are required to unlock the potential of the BOP

Newbusinessmodels

Tailoredoffers

Improveproductivity

Relianceon

middlemen

Limitedinvestments

Uncertainquantity

and pricesLowerprofits

Producers

Low productivity and high wastage Consumers

Lowlivelihood impact

Unprofitable to reach and serve

Unable tocreate

demand

Low fluctuating incomes

Lowthroughput

Businessenablers

Unwilling to invest

Lack ofinfrastructure

Lowerrealization

Supply chaininefficiencies

Unprofitableto serve

Invest inbusinessenablers

2.5 Business opportunities along thefood value chain

Engaging with the BOP in business activities relatedto the food value chain can generate value forcompanies in a variety of ways. This value may befound through commercial returns; expanded marketaccess; increased quality, reliability or cost-efficiencyof a company’s supply base; or new businesslinkages to local entrepreneurs. Despite the evidentchallenges, many companies are adopting innovativeapproaches to reap the benefits. Although theyemploy different models, their collective experiencesprovide valuable insights into how companies canunlock the potential of the next billions. Thesebusinesses have uncovered opportunities all alongthe food value chain, working with agriculturalsuppliers and farmers, intermediaries (traders,wholesalers and other middlemen) and processors.They have also uncovered related opportunities inretailing, telecom and financial services. Examples ofthese strategies and their effects on business andthe BOP are discussed in Chapters 3 and 4.

While the strategies deployed for one product orarea are not uniformly applicable to other markets,specific examples discussed in this report havesucceeded in boosting the income of BOPparticipants substantially, for example a tripling ofagricultural yields within a year. When taken together,the business strategies outlined in this report couldhave an enormous impact on BOP income if theywere scaled up broadly. Within the BOP, the greatestgains are likely to be captured by farmers andentrepreneurs active in business-enabling sectorssuch as telecommunications and finance. Farmersstand to benefit most from multiple value-chaininterventions (i.e. the combined effects of newtechnologies, policies and institutions) and are thelargest BOP group operating within the food valuechain. Business-enabling sectors currently have asmall presence in rural areas but can grow rapidly inwhat is currently a large and virtually untapped market.

The following chapters present a systematic analysisof the untapped business opportunities that lie alongthe food value chain, which can be important drivers

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and contributors to mutually reinforcing growth. Thefocus is on models that serve, engage or benefit theBOP in their various roles along the chain. Forcompanies and partner organizations seeking todevelop or broaden their approaches in suchmarkets, the report also distils key insights on whatis needed to create sustainable, scalable businessmodels to develop these opportunities.

Hellen Awuor, farmer and entrepreneur, Kenya

Siaya is the poorest district in Kenya, with 64% ofits 500,000 inhabitants living below the nationalrural poverty line. Most of the district’s inhabitantsare subsistence farmers growing maize, andmany experience seasonal hunger. The districthas limited market-related infrastructure andaccess, further restricting farmer incomes.Diversifying into high-value crops is one wayfarmers can increase their incomes from smallplots of land.

Hellen Awuor, a farmer and entrepreneur in Siayadistrict, has successfully diversified her farmproduction and income sources. In addition togrowing maize and beans for home consumption,she has expanded into horticulture (onions,tomatoes, spinach, avocados and bananas)which she sells in the local market. She spendsthe resulting earnings (which range from US$ 2 to12 per week) on processed goods like sugar, aswell as children's school fees and medicine. Acow and 10 chickens provide additional familynutrition. Through training received from a localagricultural extension officer, Hellen plans toexpand her chicken brood for sale in the localmarket. Hellen also buys and sells used clothingto local residents, and describes herself as "abusinesswoman". Her son, Carlos, recentlystarted beekeeping on the land, producing honeyfor a local company which provided training andequipment.

Source: World Economic Forum, BAACH Kenya2007[14]

In an era of rising food demand, companies areincreasingly seeking ways to expand their supplybase and meet the needs of new consumers. Doingso effectively will require companies to developstrategies for working effectively with smallholderfarmers – who form the majority of the farm sector inmost developing countries – as well as the poor intheir capacity as consumers and entrepreneurs.Companies can work with local farmers tosubstantially increase the volume and quality of theirproduction by facilitating access to inputs andtraining, and by establishing local and internationalmarket linkages. Demand-driven business modelsare highly effective in justifying front-end investmentsin the food value chain.

As BOP incomes grow, companies are also seekingnew ways of meeting the rising demand for foodand other products from BOP consumers. Innovativeapproaches, such as designing affordable,nutritionally fortified foods and extending retaildistribution networks deep into poor communitiesthrough unconventional partnerships, are provingeffective for meeting the needs of BOP consumerswhile also contributing to their health and livelihoods.

This chapter describes specific interventions thathave reached the BOP at different points along thefood value chain. The business models presentedhere are aimed at both BOP producers andconsumers, and can have a substantial impact onimproving the livelihoods of the poor while also

Chapter 3 – Solutions to Unleash the Potential of Producers and Consumers

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• Successfully engaging the BOP as both producers and consumers requires new and innovative businessmodels. This chapter presents examples of effective models being applied along the food value chain

• Business models targeted to agricultural producers include developing and expanding distributionnetworks to increase BOP access to agricultural inputs, improving farmer productivity and supply chainefficiency, and sourcing products for local and international markets

• Models targeted to consumers include: designing nutritious foods targeted to BOP needs; expanding retaildistribution through entrepreneurs and business-to-business collaboration; and conducting educationalmarketing campaigns to stimulate demand

• Holistic business models addressing whole value chains are some of the most effective; companies canlead or coordinate action throughout the chain

Exhibit 5: Business solutions for producers and consumers along the food value chain

Developingagriculturalinputs targetedto the BOP

Improvingfarmers’ accessto agriculturalsupplies

Improvingfarmers’ skillsand techniques

Improvingmarket linkagesand supplychain efficiency

Optimizing ofsourcingprocesses

Designingnutritious foodfor poorconsumers

Expandingretaildistributionnetworks

Strengtheningconsumerdemand througheffectivemarketing

ConsumersAgricultural producers

Agricultural input

Retail(of agri input)

Agriculturalproduction

Marketing ConsumersSourcingProduct

design andprocessing

Retail anddistribution

Successful business models can either target one step or integrate different elements of the chain, adopting a holistic approach to alignopportunities on the demand side with improvements on the supply side.

providing financial returns to farmers andcommercial enterprises. However, it should be notedthat adopting such models is a deliberate choiceand requires innovations and commitment from allpartners.

3.1 Business solutions for producers

Companies seeking to expand their market shareand distribution networks for agricultural inputs, theirsupply base for agricultural products, and theirbusiness linkages in new markets can find significantuntapped potential and unmet demand in poorregions. However, effectively engaging the potentialof these markets often requires entirely newbusiness approaches that involve working withfarmers and entrepreneurs at the BOP.

Companies can adapt their business approaches toserve and empower BOP producers. The followingsections outline business models that are provingeffective in developing targeted products, expandingdistribution and spurring demand-driven productionfor local and international markets.

Developing agricultural inputs targeted to the BOP

Traditionally, agricultural suppliers have targetedmore affluent farmers. Companies that haveventured into BOP markets have done so throughre-packaging existing products to make them moreaffordable, or through adapting products for localconditions and needs. They have also offered farmequipment, such as processing and storagefacilities, for lease rather than for purchase to reducefarmers’ upfront investment costs.

Tailored new product design and R&D. A newgeneration of agricultural technologies is emerging,focused on the practical needs and constraints facedby the BOP, to deliver near-term benefits for farmers.International Development Enterprises India (IDEIndia), a social enterprise, shows how treadle pumpsuppliers can actively engage farmers and other actorsin the chain to achieve profitable results. (See box 1).

Syngenta, a global seed and crop protectioncompany, has demonstrated the payoff of long-termcommitment to developing locally-targeted solutions.The company has spent 11 years developing sugarbeet varieties suitable for tropical climates. Byswitching to the new sugar beet variety, farmers canobtain the same quantity of sugar (or alcohol orethanol) per unit of land, in half the time. Thissignificantly improves productivity and the efficiencyof land use. Using almost 30% less water thantypically required for sugar cane, the sugar beet canserve as a raw material for both the food and thebiofuel sectors. Almost 2,000 farmers in India andup to 1,000 in Colombia have participated in thepilot project. The goal is to bring 100,000 ha underproduction in the medium term in Asia, Africa andLatin America, while also improving the technologytransfer methodology to facilitate replication.

[16]

18 |

• By adopting innovative business models,companies can work with BOP producers tosignificantly boost the quality and quantity oftheir agricultural production, thus expandingthe company’s supply base and the farmer’sincome

• Companies can expand and deepen marketsfor agricultural inputs by developing productstargeted to BOP producers’ needs, adoptingnew retail distribution strategies combined withcredit access and other services, andextending training and information to farmers

• Demand-driven models are most effective forboosting production; agricultural, food andbeverage companies that support BOPproducers at each step of the farming andmarketing process can secure the best results

For many companies, financing a long-term R&Deffort to develop products for a low-margin marketposes a financial challenge. In some cases, publicfinancing or private donor funding can help catalyseR&D focused on BOP needs. The ConsultativeGroup on International Agricultural Research(CGIAR), for example, is a donor-funded organizationthat works with governments, private enterprisesand NGOs. The organization conducts research oncrops and other commodities that benefit poorfarmers. The CGIAR provides genetic and breedingmaterials to other research organizations, whichadapt them to local conditions and make themavailable to private seed companies. This approachhas produced hybrid maize breeding lines in Mexicoand other parts of Latin America through the work ofCentro International de Mejoramiento de Maíz yTrigo (CIMMYT), and hybrid millet, sorghum andpigeon pea lines in parts of India and Africa throughthe work of the International Crops ResearchInstitute for the Semi-Arid Tropics, (ICRISAT)

[17]. The

adoption of these technologies varies widelybetween countries and regions, and faces greaterlimitations in Africa.

Improving farmers’ access to agricultural inputs

Even when appropriate inputs are available in-country,poor farmers have to overcome both logistical andfinancial hurdles to access them. In sub-SaharanAfrica, farmers face some of the highest fertilizer pricesworldwide, a trend that worsened as global fertilizerprices nearly doubled in 2007-2008. Distance is alsoa barrier: 40% of African farmers live four hours ormore from the nearest input retailer.

[2]A lack of financial

services and fertilizer subsidies makes purchasesimpossible for many at the start of the planting season,when cash supplies are low. As a result, Africanfarmers have the lowest rates of fertilizer useworldwide, using only 13 kg per hectare compared to190 kg per hectare in East Asia.

[2]Some companies

are introducing innovative approaches to extendtheir distribution networks to small-scale farmersthrough direct investment or partnerships withintermediaries. These models have several commonelements: a) they aggregate both farmers’ goodsand buyers’ demand to create critical mass; b) theyact as a two-way trading platform; and c) they bundleservices and products to enhance their appeal.

| 19

International Development Enterprises India (IDEIndia) is a social enterprise that engages with small-scale farmers by supplying manually operatedtreadle pumps. The pumps help farmers to boosttheir productivity, increasing their earnings byaround US$ 400 per annum. The cost of the pumpcan be recovered within three months from the firstharvest. In order to build awareness of the benefitsof irrigation pumps, IDE India conducts live andvideo demonstrations and distributes flyers. Theyalso engage the support of village opinion leaders –influential farmers who are trained to market theproduct to their peers.

IDE India trains farmers to use and repair thepumps; select crops, planting material and fertilizer;and utilize market information. To keep retail priceslow, product manufacturing is outsourced to localmanufacturers, who follow a stringent qualityassurance program and participate in IDE India’s

warranty scheme. The enterprise has also facilitatedpartnerships in service hubs that provide processingfacilities and allow for intermediary sales of produce.In addition, IDE India facilitates an innovativefinancing mechanism, where the agricultural inputcompanies directly finance the farmers, thusbypassing the need for external financiers.

This broad-based support has helped farmersincrease their productivity; many have doubled theirincome within two years of purchase. IDE India hasalso created jobs by establishing and training localdistributors. This multi-pronged approach hasproven highly successful for the commercial pumpsuppliers and, to date, more than 650,000 treadlepumps have been sold through IDE India’s networkof dealers and distributors.

Source: International Development Enterprises,India[15]

Box 1 – International Development Enterprises, India: A coordinated approach to servicing small-scale farmers

Retail hubs in high-density areas. In rural India,Godrej Agrovet Ltd, a leading agribusinesses player,has established a chain of rural outlets, each servingapproximately 20 villages and 20,000 farmingfamilies. These outlets offer one-stop shops,providing agricultural equipment and useful servicessuch as soil and water testing, veterinary andfinancial services, post offices and pharmacies. Thecompany has partnered with other companies, suchas Tata Agrico (a subsidiary of Tata Steel) to expandits offering of services

[18]. Other farm outlets in India

are starting to provide weather and commodity priceinformation and even trading services. Some retailhubs offer post-harvest services such as processingand warehousing.

Empowerment of retailers in low-density areas.In low population density or remote rural areas,companies can link to micro retail networks todeliver supplies and to disseminate knowledge tofarmers. Some companies have empowered localretailers to become their dealers and to educatefarmers on the use and benefits of their products.The dealers receive training in both technicalknowledge and retail management skills. BayerCropScience introduced practical, small packagesizes of fertilizer and pesticides in Kenya whilesimultaneously running its Green World trainingprogramme,

[19]which also provided training for more

than 2,000 dealers on crop protection andagricultural practices. Such agro-dealer networkscan provide both dealers and farmers with access tofunding. In another Kenyan example, Equity Banklaunched a US$ 50 million credit line for 15,000agro-dealers and other small-scale enterprisesoperating along the food value chain. In complementto this initiative, the Government of Kenya launcheda subsidy programme through which farmers canredeem vouchers at agro-dealer stores to expandaccess to and demand for inputs

[20].

Strengthening farmer capacity

Farmers in developing countries often lack technicalinformation on new products and farming techniquesand, given the limitations of government-sponsoredagricultural extension services, have fewopportunities to access training. Smallholders oftenhave many dependents and limited income, with norisk protection or safety net. Given their high

exposure to risk, they are understandably cautiousabout trying new products and techniques. Privatecompanies, which trade with farmers as eitherbuyers or suppliers, can bridge this gap by offeringfarmer training programmes – so-called outgrowerschemes – increase farmers’ knowledge andwillingness to adopt the new technology.

Training and outreach by agricultural suppliers.Seed and fertilizer companies have taken the lead inproviding coordinated educational and trainingservices to farmers. Both sides benefit from theseprogrammes. Farmers gain know-how and themeans to improve their productivity, while suppliersbenefit from feedback and customer loyalty.Suppliers can take these programmes a step furtherby adding services that will not only improveproductivity but also enable farmers to enter newmarkets or to meet more stringent qualityrequirements.

In Brazil, seed company Bayer CropScience hascollaborated with HortiBrasil, an NGO, to enable 500small-scale fruit producers obtain an internationalcertification through the Garantia de Sabor – the“good flavour guarantee” – label. Bayer suppliesseeds and education to farmers through anoutgrower programme,

[21]while third-party monitors

regularly review their adherence to sustainablefarming techniques and certify the quality standardsof the fruit. In parallel, Bayer builds marketacceptance by educating wholesale traders aboutthe new label. The produce sold under the label ispriced at a premium in retail markets and is suitablefor export, providing a considerable opportunity forfarmers to improve their productivity and incomes.By investing in the brand, the partners hope tocreate regular consumer demand for the products inlocal and international markets.

Training and capacity-building by buyers.Buyers or traders who want to ensure adequatesupply and quality often develop outgrowerprogrammes with farmers. These programmes canrange from supplying seeds and fertilizers toproviding training and monitoring programmes.Under these programmes, buyers will guaranteepurchase of certain volumes at specified prices.They will sometimes make payments in advance ofthe harvest, smoothing out cash flow and creating

20 |

stability that can give farmers the confidence toinvest in goods and services that will further improvetheir incomes. Such advance-payment schemesmust be structured equitably to ensure a competitiveprice at harvest time.

Buyers can also take an extra step and ensure thatpost-harvest loss is minimized between farm andfactory, thereby increasing profitability for bothfarmers and wholesalers. Metro Cash & Carry, oneof the largest food wholesalers in Vietnam, buysfresh produce from several smallholders in the LamDong province, a vegetable-growing region. Inpartnership with local authorities and NGOs, Metrohas invested in training programmes for farmers andother small-scale service providers along the foodsupply chain. So far the company and its localpartners have trained 18,000 farmers in Vietnam andare running similar programmes in other countries.

[22]

Improving market linkages and supply chainefficiency

Inefficient supply chains raise costs and reduceprofits for companies and farmers alike. Investmentsin better transportation, warehousing, infrastructure,storage and intermediaries can boost returns overthe long term for all participants in the supply chain.

Improving logistics and warehousing. Post-harvestlosses in developing regions can be significant. Forperishable products, such as milk and vegetables,50% of the product may be spoiled before it reachesthe consumer market. Losses affect farmers bothdirectly (when their products spoil before sale) andindirectly (by lowering prices paid by traders andprocessors, who are also affected by wastage).Investing in on-farm processing, warehouse systems,logistics and training can increase the speed and

| 21

efficiency of delivery to market. Sometimes, simplemeans are sufficient. Metro’s Cash & Carry outlet inIndia suffered losses in its tomato supply as high as40%. It turned out that during their breaks, handlerssat or slept on top of bagged tomatoes. Bychanging its packaging to crates, Metro was able toreduce waste to 15%.

[23]TNT, a global mail, express

and logistics provider, has provided analyses andrecommendations to public agencies and partnershipswith a goal of improving efficiency of transport andsupply chain networks in several African countries toreduce transport costs and travel time.

[24]

Investing in intermediaries that add value. Whileintermediaries in developing markets are often seenas one of the main causes of supply chaininefficiency, they can be useful in providing funding,marketing, logistics and other goods or services thatwould be otherwise unavailable to farmers. Theymay also hold valuable knowledge about producercommunities that they can communicate to buyers.Moreover, they help aggregate a highly fragmentedsupply base, increasing efficiency for buyers whowant to buy larger volumes of produce. Companiesneed to determine which intermediaries add value,so that they can then be supported. Retailer PT

Carrefour Indonesia has done this with freshproduce wholesaler Bimandiri. The wholesaler helpsCarrefour establish and enforce quality and quantitystandards and, at the same time, helps smallholdersto receive a negotiated and fair price.

[25]

Optimizing of sourcing processes

Local procurement systems can benefit poor farmersas well as processing and retail companies.Initiatives to establish such systems are often theresult of commercial incentives to reduce costs.These can entail replacing high-cost imports withlow-cost local goods or new products developedlocally.

Switching from imports to local sourcing. Risingdemand for processed foods, combined with hightariffs and increasing production costs, are drivingcompanies to view local small-scale farm produceas a viable alternative to imports. For example, toincrease its supply of high-quality corn in China,General Mills switched from imports to local sourcingand reduced procurement costs by 25% in theprocess. The company currently sources corn forthe Chinese version of its Bugles snack from 528

22 |

small farms in Yongqing Village, in the Heilongjiangprovince. General Mills partnered with a local miller,Xingda, which provided logistical support andmanaged local relationships.

[26]Such partnerships

are essential in improving farmers’ efficiency and totap the benefits these farmers can add in terms ofcosts, reliability and quality. Likewise, Olam, one ofNigeria’s largest food processing companies, haspartnered with the United States Agency forInternational Development (USAID) to procure ricefrom small-scale farmers after an increase in tariffsmade imports less attractive. Olam provided farmerswith inputs, technical assistance and access toprocessing facilities. Because the farmers needed toproduce a better and more consistent quality, Olamand USAID also established model farms, used forextensive training and research. In addition, Olamlaunched a high-quality branded rice product toensure it would capture sufficient margins. Collaborationwith Olam resulted in an average yield increase of75% in the first two years and a net income growthof over 155%. The programme currently involvesover 8,000 farmers.

[27]Such local-supply

programmes can maximize value capture whenfocused on premium products. However, as SABMiller has proven (see Box 2), sourcing for lower-priced products can benefit smallholders as well.

Commercializing local raw material. Local staplecrops or raw materials often hold untapped potentialfor commercialization. Unilever has cooperated witha wide range of partners to unlock hidden value inprocessing the Allanblackia seed, a traditionalsource of cooking oil in a number of Africancountries. The resulting Novella Africa project hasdesigned a supply and processing chain to procure,extract and market the oil as an alternative to othervegetable oils in soap and processed foods. In theproject’s second commercial phase, farmers aresupplying several additional processing companies.One of the key success factors is cooperationamong the private sector, government and NGOpartners, which provided an international perspectiveand on-the-ground experience. This enabled theinitiative to be scaled out from Ghana to Tanzania,Nigeria, Liberia and Cameroon.[29]

| 23

Liu Fuyou, farmer, People’s Republic of China

Liu Fuyou lives in Yongqing Village in Heilongjiangprovince in China. For generations, his family hasbeen growing corn on 2.5 acres of land. In 2003,Fuyou signed a contract farming agreement withGeneral Mills, which guaranteed an above-marketprice for 100% purchase of his crop. GeneralMills provides technical assistance, quality seedsand financing for purchasing inputs such asfertilizers. Liu Fuyou previously had no access tosuch services, and his income varied unpredictablybased on weather and market prices.

Since becoming a contract farmer, Liu Fuyou’syields have tripled. His household income hasmore than tripled, from a range of US$ 680-800to US$ 3,300. Liu Fuyou has invested theincreased income in improving the life of hisfamily. He built a new house to replace theirprevious mud and grass structure, and installedstorage buildings and a perimeter wall. He alsobought a small tractor, a television, radio, mobilephones and other household appliances. Thefamily has improved its diet, buying more meatand varied foodstuffs.

Similar impacts are visible in the livelihoods ofother contract farmers in the community. Manyfamilies have invested in housing improvements,tractors and motorcycles, and other items.Increased spending has catalysed the growth oflocal micro-enterprises such as small shops andrestaurants. The village road has been paved,improving the community’s access to nearbytowns and markets.

Source: General Mills 2008[28]

Building markets for high-value sustainabletrade. Trade barriers, inadequate logistics and alack of agents to advocate and promote productsgenerally restrict or prevent small-scale farmers fromaccessing high-end markets. Sustainable tradepractices, partly based on principles of the fair trademovement, help farmers circumvent such roadblocks.The main aim is to provide consumers with food thathas been grown in accordance with environmental,health, safety and fair-wage or pricing standards.Sustainable trade practices also make the sourcingand certification process an essential part of the finalconsumer product, justifying a price premium. Forexample, the cooperative Kuapa Kokoo, representing40,000 cocoa farmers in Ghana, partly owns DivineChocolate Ltd, a trading company that markets apremium chocolate made with Kuapa Kokoomembers’ products.[31] Although adhering tosustainable trade practices, the brand also targetsthe broader market for high-quality chocolate.

Large companies are increasingly applying theseideas in their international supply chains. Forexample, Kraft Foods sources several keycommodities from developing countries facingunique environmental, economic and socialconcerns. In the early 1990s, the company beganadopting sustainable practices in procuring coffee. In2003, the company sought certification from theRainforest Alliance certification. Certified productscomply with the Sustainable Agriculture Networkd

standards for protecting wildlife, wild lands, workers’rights and local communities. Today, with eightcoffee brands in more than 20 countries carrying theRainforest Alliance seal, Kraft is the largest buyer ofRainforest Alliance Certified beans.[32]

24 |

Brewer SABMiller has rolled out several newproduct innovation, quality improvement and importsubstitution projects in Africa and India. Whenidentifying suitable regions, SABMiller looks atgrowing markets with an undersupply in agriculturalproducts, supportive partners, and existinginfrastructure in critical areas such as water supplyand transportation. One of the key challenges isidentifying and managing relationships withgovernment, NGO partners and other stakeholders.Currently over 10,000 smallholder farmers areinvolved in projects in India, Tanzania, South Africa,Uganda and Zambia. The company expects toincrease the number of participating farmers to30,000 by 2012. In most cases, the businessbenefits have already exceeded the initial investmentand farmers have seen a significant increase in theirincomes.

With the introduction of the Eagle Lager brand inUganda, SABMiller expanded its import substitutionmodel and redesigned its products to accommodatethe availability of local supplies of sorghum. Thebrewer participated with the local government inresearch on sorghum and designed a supply chainthat accommodates small-scale farmers. WhileSABMiller also works with commercial farmers, forthe Eagle brand it is committed to buying fromsubsistence and more vulnerable producers. Thebrand is expected to provide direct financial benefitsto more than 5,000 farming families in 2009.

Source: SABMiller Company Information 2008[30]

Box 2 – SABMiller: Global smallholder sourcing strategy

d The Sustainable Agriculture network is an internationalcoalition of leading conservation groups

3.2 Business solutions for consumers

Companies often find it difficult to access the BOPas a consumer market, since they generally havelow and fluctuating incomes and are often located atthe end of informal and inefficient market chains. Inaddition, there is little information available on theirbehaviour and preferences, and marketing strategiesdevised for higher-income markets are oftenineffective in creating or strengthening consumerdemand. Companies can overcome these obstaclesand launch successful products by introducing newproducts developed through well-targeted design,cost-efficient processing and effective marketing.Executing such business models effectively oftenrequires partnerships with other organizations.

Designing nutritious food for poor consumers

Nutritional deficiencies cause substantial damage tohuman health and economic productivity. Providingfood enriched with micronutrients such as iron andvitamin A is recognized as one of the most cost-effective solutions. Fortified foods in the form ofenriched staples, such as flour and salt, orprocessed foods with nutritional supplements are aneffective delivery mechanism for such micronutrients.Although fortifying food is technically a relativelystraightforward process, large-scale fortificationefforts have to overcome a number of hurdles. Manydeveloped countries lack regulation, leaving foodcompanies to introduce fortification on a voluntarybasis, often at added cost. Consumers may bewilling to prioritize fortified foods once aware of theirbenefits, but reaching them with the information is achallenge. Companies seeking to provide fortifiedfoods to the BOP must therefore invest in effectiveand affordable products, establish cost-effectivelocal processing capacity and undertake welldesigned and targeted marketing campaigns.

For these reasons, many food fortificationprogrammes still involve donor funding, at least inthe development or transitional phases. Donorfunding often focuses on supporting fortification ofstaple foods, due to their broader reach and lowercost. Processed foods, by comparison, are moreoften sold at a premium. However, several foodcompanies have achieved commercial success withfortified products, based on transitional or no donor

funding. As income levels rise among the BOP,those with discretionary income can become a strongmarket for nutritionally enhanced products. Successrequires creating low-cost products that meet marketconditions and have durable packaging, a long shelflife and little need for clean water or electricity.

Brittania Industries, the Naandi Foundation and theGlobal Alliance for Improved Nutrition (GAIN) recentlycooperated to make fortified foods more widelyavailable for lower-income groups in India. Britanniais a leading Indian food manufacturer and its biscuitsreach more than 70% and 45% of urban and ruralmarkets, respectively. The Naandi Foundation is apublic trust that focuses on the protection of childrights, particularly in education and nutrition. GAIN isa Swiss foundation that works to catalysepartnerships and create an enabling environment forfortification. The partners utilized Naandi’sestablished infrastructure of school feedingprogrammes in Andhra Pradesh to distribute iron-fortified biscuits to over 150,000 children. Britanniahas now launched commercially an iron-fortifiedversion of its popular Tiger biscuits called Bananabiscuits. Over 2 billion packets of Banana biscuitshave been sold to date using traditional marketchannels to reach the general population. In additionto improving children’s nutritional status, the initiativehelped Britannia to gain insight into the BOPconsumer market and position itself as a foodcompany with a nutritional focus. Furthermore, itcreated opportunities to explore the development ofadditional lines of fortified food products for bothlow-income and affluent consumers.[33]

| 25

The French company Nutriset developed a ready-to-use peanut-based paste, Plumpy’Nut, to providenutritional support to malnourished children indeveloping countries. In addition to tasting good, thepaste is packaged in foil packets so that it can bedistributed easily throughout relief camps and otherchallenging environments. To reduce cost andexpand distribution, the company has set up afranchise system in Central and Eastern Africa tolicense Plumpy’Nut to local producers.[34]

Expanding retail distribution networks

One of the main challenges to commercial enterprisein BOP markets is reaching consumers. While allpoor consumers tap into retail networks to purchaseessential goods, these mostly informal systems areoften comprised of multiple small-scaleintermediaries with limited incentive or opportunity tocreate economies of scale. Poor infrastructure, suchas roads and warehousing, compounds existinginefficiencies and raises costs. As a result, the pooroften pay higher costs per unit for essential servicesthan wealthier members of the community, the so-called “BOP penalty”. Companies can reducedelivery costs and make goods more affordable toconsumers through both conventional andunconventional means. Effective strategies includeworking with existing informal channels, trainingentrepreneurs and collaborating with othercompanies.

Leverage informal retail and distributionnetworks. Providing small-scale retailers with toolsand information can allow companies to utilizeexisting informal trading channels and turn small-scale retailers into product agents, therebyexpanding their reach. Given the right training andtools, many poor consumers themselves canbecome successful small-scale retailers, assistingcompanies providing last-mile access to theconsumers that are hardest to reach. In Brazil,Nestlé engages rural women to operate asdistributors. They travel door-to-door demonstratingproduct benefits and selling directly to consumers.By creating incentives for local retail entrepreneursrather than hiring salaried employees or franchiseholders, the company reduces its need to monitorindividual sales performance. Once a company hasestablished a critical mass of micro-retailers, it canstart to provide additional services such as credit orportfolio expansion. These arrangements helpcompanies build trust within a community and reachthe target segment efficiently.

Organized retail is one of the fastest growing sectorsin developing countries. For example, in Thailand,the US$ 56 billion retail market has grown annuallyby 12% since 2002.[36] While they are sometimesseen as a threat, large-scale retailers can alsoprovide commercial opportunities for small-scaleentrepreneurs. Instead of striving to replace micro-retailers, some of these large players are partneringwith them to extend their own footprint. India’sSubhiksha Trading, an arm of Subhiksha, an urban

26 |

supermarket, pharmacy and telecom chain, forexample, is becoming a wholesaler to micro-retailersin urban and suburban areas.[37]

Business-to-business collaboration to extendand improve distribution networks. Collaborationwith other companies can help reduce delivery coststo the BOP. Hariyali Kisaan Bazaar, a rural retailchain managed by DCM Shriram Consolidated Ltdin India, bundles the services and products of 80different suppliers into one single store.[38] Mi Tienda,a Mexican retail association, helps small rural shopsmaintain a diversified and current inventory. Theorganization’s network of regional buyers acts as anintermediary between large wholesalers and thesmall shops. They deliver fresh produce daily, evenin small quantities.[39] Such initiatives save costs,diversify inventory and expand distribution networks.

Strengthening consumer demand througheffective marketing

Educational marketing. Since they are unfamiliarwith many commercial products, BOP consumerscommonly look to trusted sources such as friendsand family for advice in making purchasingdecisions, rather than relying on messages from themedia. Numerous companies have developedinnovative pathways of communication, oftenborrowing from social marketing models to useword-of-mouth advocacy, peer marketing, villagemeetings and performance art.

Creation of partnerships with “trusted parties”.Successful marketing strategies often depend onpartnerships, especially with organizations andbrands that are deemed trustworthy. In China, a

| 27

In launching a national campaign to combat irondeficiency, China’s Center for Disease Control (CDC)partnered with GAIN and Zhenji (Shijiazhuang ZhenjiBrew Group Co., Ltd), a leading soy manufacturer,to introduce an affordable soy product fortified withiron. The campaign has been a major success for allplayers. Sales of the fortified soy sauce increasedfrom 1,500 to 20,000 tons per year over two years,reaching sales of nearly US$ 5 million. The productis marketed in nearly 90% of Chinese stores that sellsoy sauces. Zhenji increased production capacity to100,000 tons per year to meet growing demand.Awareness levels among high-risk individuals inmany provinces was close to 100%, and anaemiarates fell from 20% to approximately 8%.

Several key strategies helped drive this success:

• Aligning public and private incentives: CDCprovided the fortification formula and manufacturingtechnology to Zhenji for free and conducted anationwide educational campaign. In return, thecompany agreed to keep the price affordable.

• Leveraging public-sector resources: CDC createdteams at national and local levels to manage

relationships with various government agencies,including coordination with the health departmenton quality control.

• Clear value proposition to consumers: Thecampaign offered consumers a superior productwith health benefits priced at only 1 cent more perbottle than traditional soy products, which was farcheaper than medicinal treatments for iron-deficiency anaemia (IDA).

• Combined marketing efforts: The CDCspearheaded an educational media campaignthrough TV, newspapers, flyers, and other mediathat targeted consumers directly. It was able topromote the product on television through itsaccess to free “educational” airtime. This lentgovernment credibility and raised awareness of theproduct, while lowering costs for Zhenji. Zhenjifocused its marketing efforts on retailers and ruraldoctors, using promotions and discounts to drivetraffic to stores and garner support for the product

Source: Global Alliance for Improved Nutrition, 2008[35]

Box 3 – Zhenji: Fortifying soy sauce in China

successful marketing campaign for a fortified soysauce involved China’s Center for Disease Control(CDC), a governmental institution that is viewed bylocal consumers and medical professionals as theleading authority on nutrition. (See box 3)

Certification and labelling. Certified labels help todifferentiate products and increase consumer trust.When the South African government introducedlarge-scale fortification of maize flour, it developed adistinctive logo to set the product apart. One of thekey lessons of this project, however, was thatcertified labels require a level of investment andmarketing similar to that required for brandedproducts. After initial donor funding for the start-upphase, the maize fortification project is fullycommercially viable.[40]

3.3 The case for holistic solutions

While many companies engage in just one stage ofthe food value chain, holistic approaches can unlockeven greater value. Holistic business models takeinto account all three roles played by the BOP – thatof producers, consumers and entrepreneurs – and

rely on a coordinated approach to address multiplestages of the food supply chain. In the Novella Africaproject, Unilever and its partners strove to involveboth small-scale farmers and micro-entrepreneurs inthe food value chain, reducing costs for consumersat the same time. A key insight from projects thataddress the full supply chain is that interventionslinking farm production with market demand havethe strongest potential to provide sustainableeconomic growth and lift large numbers of peopleout of poverty. The introduction of Shokti Doiyoghurt by Grameen Danone Foods Ltd is a primeexample (See box 4).

Undoubtedly, private enterprises have strongerbargaining power and greater resources than mostmicro-entrepreneurs, farmers and consumers. Whilecompanies could take advantage of this imbalance,leveraging their position or engaging in monopolisticbehaviour, that approach would be short-sighted. Tothe contrary,, some companies have adoptedsuccessful BOP strategies that require investmentsin community-scale infrastructure or capacity-building which could conceivably benefit thecompany’s competitors. While this represents a

28 |

Exhibit 6: Approaches to improving food value chains

Food value chain

Micro-irrigation

IDE India

Fortified soy sauceZhenji

Nutritional yoghurt

Grameen Danone Foods

Agriculturalinput

Retail(of agri input)

Retail anddistribution

MarketingProduct

design andprocessing

SourcingAgriculturalproduction

Consumers

Tailoredinnovation

Empowerdealers

Retail &Intermediaries

Facilitatemarket links

ConsumptionProcessingTrainingfarmers Consumers

Provision of

agricultural

services and input

Distribution to

suppliers

Establish micro-

retail network

Educational

marketing

Localized

processing

Product

design

Preferential sourcing

Improved logistics

Local distribution

• Integrated farms

• Train suppliersConsumers

Break intonew channels

AgriculturalInput

Retail &Intermediaries

Educationalmarketing

Leveragepurchasing

power

AgriculturalProduction

ConsumersTailor product

design

departure from traditional practice, it can be seen asnecessary and increasingly common practice in BOPmarkets. Companies can view these investments asbenefiting the BOP and broader businesscommunity as a whole.

Not all companies have the full array of resourcesand competencies required to remodel entire supplychains, or engage the poor effectively in theirdifferent roles. Partnering with other companies and

stakeholders can provide such capacity. Whenengaging partners in a multi-stage project, however,companies should place special attention onprioritizing and sequencing interventions. Companieswill need to gain insight into smallholders’ supplychains, identify the key issues and determine wherebest to start.

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In 2006, Groupe Danone and Grameen Bankcreated Grameen Danone Foods Ltd, Bangladeshto develop a healthy, affordable yoghurt-basedproduct that would be marketed to and provideincome for poor families. Two years later, GrameenDanone is selling Shokti Doi (“energy yoghurt”) at 6cents for a 60 g cup, which is substantially less thanother products in the market. A single cup isfortified with sufficient nutrients to meet up to 30%of a child’s daily requirements. Grameen Danonecurrently has 100 full-time employees.

To keep costs low, Grameen Danone decided tocreate a local supply chain from scratch. Thecompany established microfarms for milkproduction, working with NGOs to train framers. Itset up a milk processing factory that relied onhuman labour more than technology. It developed aunique distribution model by training women tomarket the yogurt door-to-door; currently 1,600 ofthese “Grameen Ladies” are selling products. The

model has garnered substantial attention for itsinnovation and potential for scaling. Key elements ofsuccess included:

• Environmental sustainability: Grameen Danoneworked to minimize environmental impact. Thefactory was designed to use harvested rainwater,solar power and biogas. Milk was collectedwithin 30 kilometres of factories to minimizetransport costs. Yoghurt cups were made frombiodegradable cornstarch.

• Holistic value chain approach: GrameenDanone’s local supply chain model benefits boththe community and the company by empoweringproducers and entrepreneurs while keepingproduction and distribution costs low.

Source: Harvard Corporate Social ResponsibilityInitiative, 2007[41]

Box 4 – Grameen Danone Foods Ltd, Bangladesh: A holistic value chain approach

A functioning food value chain is a market-basedsystem, with business activities taking place at eachstep. The people and enterprises operating alongthe chain need certain tools, services and capacitiesto conduct business efficiently. Industries such asfinancial services, telecommunications, energy andtransport are powerful enablers of business activityand are therefore essential for improving theefficiency of the food value chain. In addition toproviding goods and services, entrepreneursthemselves are central to making the system work.Taken together, we call these actors “businessenablers”. Although not part of the food andagriculture sector directly, they enable and stimulatemany of the functions of the food value chain, whiledriving economic growth by harnessing and enablinglatent entrepreneurship.

Public-sector investments and services are crucial tothe smooth functioning of the food value chain, butin many BOP communities they are highly limited.This chapter will focus on specific solutions thatcompanies themselves can put forward tostrengthen business operations in suchenvironments. It highlights three key gaps thatcurrently restrict food value chains and can beaddressed by private-sector operators: access tomarket information; access to financial services; andaccess to soft and hard infrastructure.

4.1 Providing Market Information

Most small-scale farmers have little or no access toinformation on what products are in demand, how totailor production to the market and what pricebuyers are willing to pay. Because they lackinformation and adequate storage facilities, farmersare often forced to sell surplus produce immediatelyafter the harvest, when prices are typically lowest. Inaddition, because they lack adequate access tomarkets, they often must rely on middlemen, whichreduces farmers’ profits and raises cost to theconsumer. A study by the Pakistan Institute ofDevelopment Economics estimates that middlemenpocket as much as 50 to 60% of the profits in thevalue chain from farm to consumer. By contrast,when farmers can access market- and agriculture-related information, they can produce and sell theirgoods based on the best economic opportunities,thus maximizing their gains.

Historically, this information gap has not been easyto bridge. Farmers are scattered across rural areaswithout access to conventional channels ofcommunication. Agricultural suppliers and buyershave been reluctant to invest in developing thesechannels because of the costs involved. Today,however, new technologies are providing someinnovative solutions. Simply connecting people indistant locations by mobile phone has powerfulmarket effects. Off the coast of Kerala in India, forexample, fishermen now call potential buyers whilestill at sea and then dock their boat directly at thesite of the buyer offering the best price. Before theadvent of mobile phones, the same buyers oftenreturned empty-handed from the marketplace closest

Chapter 4 – Empowering Entrepreneurs throughBusiness-enabling Products and Services

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• Business sectors that enable entrepreneurship play an important role in bridging three gaps that currentlyrestrict the food value chain: access to information, financial services and infrastructure

• Telecommunications access and applications can provide key market information, enable trading andfacilitate mobile cash transfers

• Financial services can enable investment and growth at each step of the food value chain, whetherprovided to individuals, communities or producer groups, or small and medium enterprises

• Infrastructure shortages can be overcome in some cases through business innovation – addressing “hard”infrastructure for energy, water and logistics; and “soft” infrastructure related to producer organizations,policies and standards

to them, unaware of a big haul a few kilometres away.In China, Qualcomm helped to empowerentrepreneurs with mobile handsets through itsWireless Reach programme. The companypartnered with PlaNet Finance and China Unicom todonate 2,000 handsets, precharged with servicevouchers valid for two years, to microfinanceborrowers and officers. PlaNet Finance provided keyprice and loan information to recipients through SMSmessages. The mobile access helped increase theefficiency of entrepreneurs’ small enterprises, whileimproving their access to markets. The increasedaccess to communications also helped farmers stayabreast of relevant news such as impending weatherchanges.[42]

Pricing information systems. New technology inUganda is helping farmers to get the best price fortheir crops and avoid being cheated byunscrupulous middlemen. Foodnet, an organizationthat helps improve market efficiency and processingin the agricultural sector, has introduced a systemallowing farmers to use their mobile phones to learn,within seconds, the current price of maize atmarkets throughout the country.[43]

Technology, however, is not the only way to getinformation to and from farmers. The First MileProject in Tanzania has had great success inbringing market information to farmers with kalmiashu shu shus, or market spies. These market spiesroam the markets, chatting with traders, wholesalersand transporters to get the latest news. They thendeliver information via mobile phone text messagesand also share their insights on community billboardpostings. Although funding for the project ceases in

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Exhibit 7: Key business enablers in the food value chain

Strengtheningbusiness operations

Providing market information

Improving access to financial services

Overcoming infrastructure gaps

• Pricing information systems• Information on good agricultural practices

• Credit for individual farmers• Mobile cash transfer services• Offering monetary stability through savings and investment• Downside protection through novel risk mitigation instruments• Capital funding for small businesses

• Hard infrastructure– Enhancing storage and transport facilities to improve logistics– Overcoming energy gaps– Providing access to water

• Soft infrastructure– Improving farmers “technical and commercial” capabilities– Strengthening organizational capacity of farmers– Establishing standards and guidelines to expand market access

2009, the spies are already charging commissionsfor their services. While it remains to be seen if thecommission fees will cover their costs, many areconfident that both buyers and sellers will be willingto pay, as the benefits of their service outweigh thecosts.[44]

Information on good agricultural practices.Providing farmers with information on goodagricultural practices is a “quick win” solution thathas shown impressive results. In a partnershipbetween BT, Cisco and OneWorld, the LifeLinesIndia project has already demonstrated a 20 to 30%increase in productivity among users. The service issimple: farmers can dial a fixed voicemail numberwhere they can record their queries. A dedicatedknowledge worker then finds the answer through apanel of agricultural and veterinary experts, using aninnovative Internet-based application. Farmers canretrieve the answer by voicemail at a cost of Rest. 5(11 cents). After 2.5 years of operation, the service isreceiving over 12,000 calls per month[47].

4.2 Increasing Access to FinancialServices

Financial services such as credit, savings andinsurance are essential tools for investing inenhanced production, managing price and incomevolatility, and mitigating risks such as drought orcrop failure. However, most small-scale farmers havelittle or no access to such services, a constraint toinvestment that affects the majority of the BOP.Nearly half the poor households in Brazil do nothave a formal bank account, while in China theshare of households without access is about threequarters.[49] Most BOP communities areuneconomical to reach through conventionalbanking methods such as centralized branches.Even if BOP communities can be reached, bankslack information about individuals’ credit and riskprofiles (such as transactional history and futurecash flows), which hinders their ability to constructsuitable financial products. To tap the unmetdemand for financial services at the BOP effectively,financial institutions need to address the barriersrelated to both access and information.

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KACE, an agricultural service provider founded in1997, facilitates trade by communicating the pricesof more than 42 commodities in 10 regional marketsthrough several channels. It provides kiosks wherebuyers and sellers can place offers and bids for afee. These kiosks are used by about 24,000 farmersand generate US$ 5,000 a month in trading volume.At one of the markets (Bungoma, in NyanzaProvince), farmers who sold through the kioskreceived 22% higher prices than those who soldoutside.

KACE also provides an SMS-based priceinformation service, accessed via the Safaricommobile phone network. Users, including farmers,can discover prices of products in 10 regionalmarkets, thus strengthening their bargaining powerwith local traders. To date, 1.2 million messageshave been delivered.

Lastly, KACE also offers an online trading platformfor agricultural products, as well as informationthrough mass media, such as television and FMradio. The online platform allows users to placecommodity offers and bids for electronic tradingthrough the internet. This widens the market reachbeyond local markets to regional and even globalmarkets. Mass-media channels bring the market tothe doorsteps of the farmer in remote areas, often inlocal languages. To date, fees cover only 60% ofoperating costs, with USAID filling the funding gap.But given the growth in usage, sponsors expect theprogram to become self-sustaining in the nearfuture.

Source: KACE, 2004[45], Kenya BDS, 2007[46]

Box 5 – Kenya Agricultural Commodity Exchange (KACE): Providing market information to farmers

Credit for individual farmers. Lack of access tocredit is a major barrier preventing the BOP fromimproving economic conditions. Many rely on informallenders who charge extremely high interest rates,placing a heavy burden on the limited resources of thepoor. This is another example of the “BOP penalty”phenomenon, where the poor pay higher prices forbasic services than their wealthier neighbours.

Micro-finance institutions (MFIs) work at thecommunity level, lending small amounts of money tocustomers whose businesses and needs theyunderstand well. This popular model is striking for itslow number of defaults, often securing repaymentrates above 90%. MFIs rely on community influenceto establish creditworthiness, prevent default andarbitrate conflicts. Successful models have beendemonstrated by the Grameen Bank in Asia,Amhara Credit and Savings Institution (ACSI) inAfrica, and Accion in Latin America.

The MFI model has evolved in the last 25 to 30 years,with institutions tapping global financial markets toovercome capital constraints and expand the scale oftheir operations, thereby benefiting more borrowers.The Bangladesh Rural Advancement Committee(BRAC) recently securitized and sold a portion of aUS$ 180 million loan portfolio to an investorconsortium led by Citibank. The deal was structuredby MF Analytics Ltd. This marks the first ever suchtransaction by an MFI, setting a new precedent forthe sector and potentially encouraging other MFIsthat have achieved a sizeable loan portfolio to tapinto capital markets and expand their operations.[50]

Mobile cash transfer services. Cash transfersthrough mobile phones have grown rapidly, astelecom companies begin to offer the service inspecific countries. Cash transfers are highlyappealing to the BOP because they enable securetransfer of small amounts of money betweenindividuals or small businesses, for a low fee,without requiring either individual to have a bankaccount. Globe Telecom Inc.’s GCash initiative in the

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Grameenphone, a joint venture between Telenor andGrameen Telecom of Bangladesh, started theGrameenphone Community Information Center(GCIS) program in 2006 with 16 centres. Each GCICprovides Web access, a printer-scanner, a Webcamand both fixed and mobile pay phones.

Rather than own the facility itself, Grameenphonecollaborates with local entrepreneurs, who share inthe profits. In addition to providing access to

telecommunications, the program provides locallyrelevant online content on such topics as health andagriculture, with information sourced from partnersincluding Anovatec (a healthcare service provider),Noakhali Web (an online newspaper), and othernon-governmental development organizations. Theinitiative has now established over 500 GCICs.

Source: Grameenphone, 2006[48]

Box 6 – Grameenphone Community Information Centers, Bangladesh:Encouraging rural entrepreneurs to bridge the digital divide

Philippines allows Globe’s subscribers to use theirmobile phones to pay bills and make loan paymentsat a nominal fee. In order to expand coverage,Globe has developed a network of locations wherecash can be converted into “mobile currency”. Inaddition to its existing stores, it has partnered withleading department stores and banks in around1,800 locations to gain access to their ATMnetworks. Globe's GCash service is also used byoverseas Philippino workers to send remittances totheir families with great success. Total remittances tothe Philippines hit US$ 9 billion in 2005, trailing onlyIndia and Mexico in total value.[51]

Offering monetary stability through savings andinvestments. Self-help groups and microfinanceorganizations have successfully brought financialservices to remote places in many developingcountries. Self-help groups are community-basedorganizations, often consisting mainly of women,who act as intermediaries between developmentorganizations and/or companies and individuals.One common self-help model requires members todeposit small sums in a bank, building a group credit

history to qualify for loans. Muthoot Fincorp, a non-banking financial corporation in southern India, hasbeen able to tap this customer segment effectively.Their product, Swarnavarsham, allows customers tobuy gold and make instalments monthly, weekly, oreven daily basis, providing flexibility to allow for theincome volatility of poor customers.

Downside protection through novel riskmitigation instruments. The poor are highlyvulnerable to economic shocks such as crop failure.Historically, insurance has not been available tothese customers and both the concept and the costof insurance are unfamiliar. There is, however, unmetdemand for these services, as evidenced in aninitiative driven by insurers Swiss Re, ICICI Lombardand BASIX, to offer weather insurance to small-scalefarmers in India. Within three years of start-up, theassociation had sold insurance to more than 6,700farmers in four Indian states. Payouts are triggeredautomatically, based on the weather rather than actualcrop damage. The system is easy to use both forfarmers, because they do not need to file a claim,and for insurers, because they do not need to makeclaim visits.[53]

34 |

Standard Chartered Bank introduced the Kissancredit card in Pakistan in 2003 in conjunction withthe Financial Deepening Challenge Fund. The cardenables 20,000 farmers in the provinces of Sindhand Punjab to purchase farm inputs and repay themat harvest time. Some of its best practices areworth noting:• Rule-based lending: The bank developed clear

rules to identify potential customers. The rulescovered the size of land holding, the level of theborrower’s farming experience, the types of cropsgrown, and whether the farmer owns his or herland. These rules were defined based on anunderstanding of local market conditions.

• Group lending: Approved farmers join a groupcreated by the bank. If one person fails to pay, allmembers’ cards are cancelled. The resulting peerpressure encourages a high repayment rate.

• Wide merchant coverage: To increase theusefulness of the card, Standard Chartered madedeals with almost 325 merchants and suppliers,including such large companies as Syngenta,Fauji Fertilizer, Engro, and Pakistan State Oil.

• Active education of farmers: Most of Pakistan’sfarmers low levels of formal education and littleexposure to traditional financial institutions. Manyare suspicious of banks. The bank created awell-trained sales force that activelycommunicates the benefits of products andbuilds trust with farmers before beginning to sellthem.

Source: Harvard Corporate Social ResponsibilityInitiative, 2007[52]

Box 7 – Standard Chartered Bank, Pakistan: Providing credit cards for farmers

Capital funding for small business. Small andmedium enterprises (SMEs) in the agriculture sectoroften have high potential for business andemployment growth, but are constrained by limitedaccess to capital. To address this gap, someorganizations are exploring equity investments inSMEs that operate along the food value chainserving the BOP. These investors place lessemphasis on collateral or creditworthiness and moreon the capabilities of the entrepreneurs and viabilityof their business plans. Two such initiatives areAfrican Agricultural Capital (AAC) and the AfricaEnterprise Challenge Fund (AECF). AAC is backedby US$ 7 million from the Rockefeller Foundationand other private donors. The fund has made 15investments in small- and medium-sized agriculturalventures in East Africa.[54] The AECF is a US$ 100million pool established by several donor agencies.AECF funds private companies to develop innovativebusiness models in the agriculture and financialservices sectors. It is expected to stimulate US$ 200million in additional private-sector investment overthe next seven years.[55]

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Equity Bank of Kenya, one of Kenya’s largest banks,launched a project in 2007 aimed at providing US$50 million in credit and other financial services toKenya’s farmers, agricultural input dealers, andother players in the agricultural value chain. Twoproject partners, the International Fund forAgricultural Development (IFAD) and the Alliance fora Green Revolution in Africa (AGRA), provided aUS$ 5 million cash guarantee fund to reduce EquityBank’s risk.

The Kenyan Ministry of Agriculture is also a partnerin the project, which provides targeted subsidies topoor farmers in the form of vouchers, which theycan use to purchase inputs from agricultural inputdealers. The Ministry also conducts outreach tobuild awareness of the program, and helps monitorits results. If successful, project partners plan toreplicate this approach more broadly in Africa.

Source: International Fund for AgriculturalDevelopment, 2008[20]

Box 8 - Equity Bank, Kenya: Financing farmers and enterprises along the food value chain

Veronica Odongo, agro-dealer, Kenya

Veronica Odongo runs Yala Farmland Stores inYala, a small town in western Kenya. She hasworked for the past 10 years as an agro-dealerselling seeds, fertilizer and other farm inputs. Sheserves about 1,000 customers a week during thebusy planting season. She does not track theprofits from her business, but as a widow withfour children finds that they are sufficient tosupport her family. Veronica’s business hasincreased since the Millennium Village Project,which operates in the area, initiated a fertilizersubsidy programme with local companies,enabling farmers to redeem their vouchersthrough local agro-dealers. Voucher programmesusing agro-dealers, coupled with credit frombanks and micro-finance institutions, haveattracted attention throughout the region withnational programmes currently underway inKenya, Malawi, Rwanda and Tanzania.

Source: World Economic Forum and MillenniumVillage Project, 2007[56]

4.3 Overcoming Infrastructure Gaps

Infrastructure is a major constraint in the operationof the food value chain. It includes both “hard”infrastructure such as transport, energy and waterfacilities and networks; and “soft” infrastructure,which forms the organizational basis of manybusiness models, such as producer organizations,regulations and standards.

Large-scale infrastructure projects traditionally requiregovernment funding, often with backing frominternational lenders, and take time to complete,placing them outside the domain of most individualcompanies. However, to meet specific infrastructuralneeds in the near term, companies can adoptstrategies to overcome gaps in both “hard” and “soft”infrastructure through new technologies, investmentsor partnerships. This section focuses on business-led solutions that can be applied at community level,rather than national or individual farm-level.

Hard infrastructure. Three types of hard infrastructureare especially relevant to food value chains. The firstis storage and transportation infrastructure, whichhas a direct bearing on efficient supply chain logistics.The second is energy, which helps improve the qualityof life of the BOP and enhances the productivity offarmers and entrepreneurs and their capacity for

value capture. The third is water infrastructure forirrigation, drinking and sanitation. Each of thesecontinues to be a problem in the majority ofdeveloping countries. In many areas, almost 30% ofall fresh produce is lost before reaching the marketbecause of inadequate storage. Only 7% of arableland in Africa is irrigated; the remainder depends onrainfall.[57] Irrigation can substantially raise agriculturalyields, but establishing cost-effective irrigationsystems for poor farmers is a challenge. Africa issimilarly challenged for electricity access, with only35% of the population supplied with electricitycompared with an average of 68% in otherdeveloping countries[58].

Enhancing storage and transport facilities is one wayto improve logistics. Food and beverage companiescan make investments in storage infrastructure thatbenefits both producers and themselves. Tiviski Dairy, adairy for camel milk in Mauritania, has invested instorage and logistics infrastructure in order to raisethe quality of the milk it buys from local herders.These steps have been so successful that the dairyis now targeting Europe as an export market.[59]

The lack of energy services in rural areas is a majorconstraint to growing, processing, storing andmarketing agricultural products. The Institute for theDevelopment of Natural Energy and Sustainability

36 |

Nestlé participates in a pilot initiative in theShuangcheng district in China to construct smallfarm-based “biogesters” that convert cow manureto biogas. The scheme was initiated to address theissue of animal waste, driven by growing consumerdemand for dairy products. The biogesters providea sustainable way to deal with manure storage, whileproviding low-cost energy for farm households. Nestléidentified cheap, adequately sized biogas digesters,and by 2007, close to 4,000 units had been installedat 74 farms. Farmers using the biogesters benefit bysaving energy and waste management costs. Althoughthe project targeted only Nestlé suppliers initially,non-supplier farms are now also participants.

Several elements drive the project’s success: • The biogesters were designed to keep upfront

investments low with tangible, near-term financialbenefits so that farmers would be willing to adoptthem

• The active participation and endorsement of localgovernment officials lent credibility to the program

• Nestlé’s network of dairy farmers provided theinitial market for the project

• The company provided support to farmers ininteracting with other service providers. Forexample, Nestlé connected farmers with localbanks for credit and helped them investigateopportunities to trade carbon credits

Source: Nestlé CT Agriculture, 2006[62]

Box 9 – Nestlé, China: Combining sustainable waste management with energy production

(IDEAAS) has successfully implemented solarprojects in remote areas of Brazil. The IDEAASsolution is priced competitively with householdmonthly expenditures on other sources of energy,such as kerosene, wood and candles.[60] In Namibia,Motorola Inc. has pioneered a low-maintenancedesign for operating a mobile phone base stationbased on solar and wind power, allowing placementof transmission towers in remote areas andincreasing mobile phone usage[61].

Water for drinking, sanitation, and irrigation is fastbecoming a precious commodity for the BOP.Although this is a global problem, many companieshave been addressing this issue at a local level. TheNaandi Foundation in India has partnered withorganizations such as WaterHealth International USAand Tata Projects Limited, India to develop low-costwater-treatment systems. After studying the issuesplaguing safe water access in individual communities,the partnership deployed community-scale treatmentsystems. More than 300 plants are in operation anddirectly benefiting close to 2 million people.[63]

Soft infrastructure. Soft infrastructure consists ofthe capabilities, organizations, and policies orregulations that enable or strengthen businessoperations. Capabilities range from basic educationto specific skills such as technical know-how aboutproduction and processing techniques, marketinsights, management and financial skills. Effectiveorganizational structures such as cooperatives andproducers’ associations increase the bargainingpower of producers and can act as catalysts forcommerce. Policies and regulations include bothindustry-specific standards and laws governingbusiness operations. These instruments are largelywithin the domain of the public sector, which inmany countries suffers from weak governance andenforcement capacity. Standards and guidelinesrelating to food quality and safety, for example, areessential for successful functioning of the foodchain, especially as urban and export markets grow.While gaps in soft infrastructure pose significantchallenges to business, companies can put forwardseveral solutions to address them.

Many companies are bridging gaps in producers’capacity by investing in direct training initiativesthroughout the supply chain. ECOM AgroindustrialCorporation in Honduras provides technicalassistance to farmers, which includes training insustainable farming techniques. ECOM and itscustomers are willing to pay a premium price forcrops due to the full traceability, quality andconsistency of the coffee. [64]

Cooperatives often act as a bridge between largecompanies and BOP producers, creating economiesof scale unavailable to individual farmers.Cooperatives can serve as a two-way channel forexchanging information on trade, training andmarketing with farmers. Ghana’s Kuapa Kokoocooperative has acquired an ownership stake in apremium chocolate brand targeting high-endconsumer markets. However, other cooperatives areconstrained by a lack of management expertise,resources and incentive structures. The UPCOCOAinitiative in Cameroon demonstrates howstakeholders can join forces to enhance themanagement skills of cocoa cooperatives andencourage entrepreneurship. The initiative, which issupported by companies active in the non-farm partof the cocoa supply chain (including Archer DanielMidland Cocoa BV, Mars and Rabobank), focuses

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on marketing, quality, productivity, and pestmanagement. A milestone was reached with thelaunch of UcoProc, a consortium of cooperativesthat acts as an umbrella group, strengtheningmarketing and accounting at the individualcooperative and farm levels. The initiative wasdesigned with broad implementation in mind and thesecond phase will focus on spreading knowledgeand best practices throughout the cocoa sector inCameroon. Additional aspects will also beenhanced, for example by improving the quality andquantity of the crop, streamlining logistics, andincreasing farmers’ earning capacity andcreditworthiness.[65]

Private enterprises can improve market access byapplying their expertise on standards to address thedeficiencies that exist in food safety and qualitystandards in many emerging economies. BayerCropScience’s “Flavour Guarantee” project in Brazil,for example, enables produce from small farmers tobe sold to supermarkets worldwide. It has linked upwith a local NGO, HortiBrasil, to train farmers onmeeting its standards so they can obtain acertification label for their produce.

As the examples in this chapter have shown,business enablers can drive substantial valuecreation and bridge important gaps along the foodvalue chain. Telecom companies can facilitatecommunication and cash transfers. Financialinstitutions can help small-scale farmers managescarcity and volatility by providing credit, insurance,savings and growth capital. Other industries candevise innovative solutions that bridge gaps intransportation, energy or water services. Suchinitiatives create valuable opportunities for cross-industry collaboration, enabling companies tocapture synergies and enhance value creation alongthe food value chain. For example, food andbeverage companies can partner with telecoms andbanks to serve the needs of farmers. Retailers andlogistics companies can collaborate to strengthendistribution networks, partnering with othercompanies, such as finance, telecom andagribusiness that wish to extend the reach of theirproducts. Such collaboration is often the key toreducing the costs of market access and ruraloperations in rural areas, and has major potentialvalue that has been little explored.

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The International Development Division (IDD) ofLand O’Lakes, a farmer-owned dairy cooperativeand the leading livestock feed company in NorthAmerica, assists smallholder livestock farmers andgovernments in Africa through various initiativesfocused on dairy value chains. Land O’Lakes hascollaborated with the Uganda National Bureau ofStandards (UNBS) on minimum quality standards formilk and milk products. In addition, it is working toharmonize standards across countries in eastern

and southern Africa. Such an initiative is crucial,given the varying climatic and farm conditions underwhich milk is produced in the region. For thisinitiative, Land O’Lakes IDD focused on productswith strong potential for intra-regional trade andexport growth. The cooperative is playing a key rolein facilitating meetings and helping governmentrepresentatives to work together.

Source: ESADA 4th African Dairy Conference, 2008[66]

Box 10 – Land O’Lakes International, Africa: Improving Dairy Standards

The preceding chapters illustrate how manyorganizations are challenging conventional thinkingand are developing inclusive, financially viable,innovative, and scalable business models to servethe BOP. However, it is important to note that whatworks for one company or region will not necessarilywork for another. The high degree of variation andlocalization means that companies consideringentering the BOP market need to develop a set ofstrategic tools that can be adapted and applied tospecific settings. This chapter presents a set ofdesign principles that can help companies tailor theirown solutions.

The design principles are structured along the linesof a typical business model, are targeted to thecircumstances of the BOP, and present a frameworkfor innovation. The framework’s four main principlesare: create life-enhancing offerings, reconfigure theproduct supply chain, educate through marketing,and collaborate in non-traditional partnerships, and“unshackling the organization” to help new businessmodels succeed (See Exhibit 8.). It should be noted,however, that there is no “silver bullet” in this market;experience shows that organizations need toconsider many kinds of innovations in approachingthe BOP market.

Chapter 5 – Unleashing Potential: Design Principles for Success

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This chapter presents a set of five design principles that companies can use in tailoring their own solutions toenter the BOP market. These principles are relevant across multiple sectors, value chains and regions. Theyinclude:

• Create life-enhancing offerings, designing product offerings and income opportunities that meet theneeds of the BOP

• Reconfigure the product supply chain by sourcing from local producers; leveraging local distributionchannels; and overcoming infrastructure constraints

• Educate through marketing and communication to build awareness of product benefits and brand loyalty

• Collaborate in non-traditional partnerships by partnering and investing in communities; sharingcapabilities and assets among partners; and aligning incentives for mutual gain

• Unshackle the organization to align top-down commitment, bottom-up innovation, and systemicsupport within the company to facilitate BOP business engagement

Exhibit 8: Framework for innovation: Design principles for success

Unshackledorganization

Educationalmarketing andcommunication

Reconfigured

product supply

chainsLife

-enh

anci

ng

offe

rings

Creativecollaboration

5.1 Create life-enhancing offerings

The BOP often have to make difficult compromises:their incomes are limited and variable, yet they needmany products and services; they requireinformation or training, yet are cautious abouttrusting new information sources; they are eager toimprove their livelihoods, yet wary of taking risks onnew ventures or products; they live in dispersedtowns and rural villages, yet they must often delivertheir wares to distant markets. Companies will needto construct their offers in ways that allowconsumers and producers to overcome thesecommon constraints.

Whether they are producers or consumers, the BOPhave different needs from those in the mainstreamsegments of developed markets. To target newproducts appropriately, the following practicalguidelines can be followed:

• Price for the budgets of low incomes: To lowerprices, consider reducing costs along the supplychain. Grameen Danone in Bangladesh andNestlé’s “Ideal” initiative in South America cutcosts by using local sourcing and manufacturing,and employing a local door-to-door sales force.Companies may also be able to offer credit termsthat make their products more affordable to BOPconsumers.

• Tailor products to meet local needs andpreferences: Products that break down ordepend on scarce resources are impractical forthe BOP. An electric pump that requiresuninterrupted power, for instance, is not suited toan environment with an unpredictable orintermittent supply of electricity. IDE Indiaintroduced a variety of micro-irrigation pumps thatare simple and operated by manual labour, andare therefore tailored to the conditions in whichmany smallholder farmers operate.[15]

Manufacturers can introduce products andservices with features that will be useful to theBOP. For example, Unilever’s Popular Foodsinitiative in Africa, which offers Annapurna iodizedsalt and Krrunchy iron-fortified biscuits, has beenhighly successful.[67] Another example is mobilecash-transfer services such as M-PESA,developed and launched by Vodafone through

Kenyan-based Safaricom. After quickly capturinga large market in Kenya, Safaricom is now rollingout the initiative in other African and Asiancountries.[68] Products with a high degree ofreliability are also required at the BOP, sincesecuring spare parts or repairs is difficult.Manufacturers can engage local distributors todemonstrate the practicality of their products in agiven environment have been successful ingenerating word-of-mouth promotion.

• Develop environmentally sustainable approaches:Rising incomes among the BOP will spuradditional consumption and commercial activities,putting immense pressure on natural resourcessuch as land, water and energy. The costs ofgrowing food and manufacturing products arelikely to rise, making the need for sustainablesolutions all the more urgent. By introducingstrategies that seek to minimize environmentalimpact, companies can reduce their costs andestablish a socially responsible reputation, whileprotecting their future sources of raw materials.Renewable energy technologies, such as theIDEAAS solar-power-based project in Brazil[60] orNestlé’s manure-based power generationtechnology in China[62] are two examples ofsuccessful programmes. The need to producemore food without damaging the environmentalso increases the demand for sustainablefarming technologies that can increaseproductivity without negative impacts. Similarly,innovative packaging and delivery methodsdesigned for the poor can be more cost-effectiveand environmentally sustainable than conventionalstrategies.

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5.2 Reconfigure the product supplychain

BOP distribution networks need to reach distantneighbourhoods and villages, while remaining viableat low volumes and prices and maintaining adequatecontrol over pricing, stocking and service. Foodsourced from local producers needs to meet qualityand safety standards as well as being offered at asuitable price. Cost-efficient distribution often relieson making a trade-off between cost and coverage,as well as the level of control. Food products withlimited shelf lives are especially problematic. Thefollowing recommendations will help companiesdesign supply chains and distribution networksappropriate to the BOP:

• Source from local producers. Both companiesand the poor can benefit greatly by uncovering“hidden assets” related to food production withinlocal communities. Sourcing locally can reducethe cost of reaching the BOP and can providecustomized products matched to localpreferences. Most importantly, local sourcingprovides income for local farmers, expanding thesupply base and giving trust and credibility to thecompany brand. Both Unilever’s Allanblackiainitiative and SAB Miller’s sorghum lager helped tocommercialize a local crop which also benefitedlocal markets. Grameen Danone’s Shokti Doiyoghurt is sourced from, partly processed by,distributed, and consumed by the BOP.[41]

• Broaden reach and save costs by leveraging localdistribution channels. Small-scale entrepreneurscan broaden the reach of distribution networks.Hindustan Unilever outsources the last mile of itsdistribution network to Shakti Ammas, womenentrepreneurs in small villages. They receive thecompany’s products through the mail and sellthem throughout the neighbourhood.[69] Serviceproviders can also create partnerships that makethe most of low-cost and well-establishedchannels in poor communities. Companies canalso distribute their products alongside those ofother businesses targeting poor consumers in thesame locations. Agricultural suppliers can sharestorage and retail space to bring down supply

chain costs. Godrej Aadhar, the rural retail ventureof Godrej Agrovet in India, successfully bundlesmultiple products and services into a rural hub,thereby reducing the cost of reaching Indiansmall-scale farmers.[18] Companies can capturediscretionary spending by offering their productswhere low-income consumers shop and work.Local retailers often have loyal followings and areaccustomed to selling small volumes at lowprices. Standard Chartered Bank’s Kissan creditcard in Pakistan, for example, was designed forthe use of farmers buying agricultural supplies,but it is also accepted at retail grocery stores andfuel stations owned by Pakistan Oil.[52]

• Find creative ways to overcome infrastructureconstraints. Companies can collaborate to sharedistribution costs and assets such aswarehouses. New offers such as telecom-basedmobile cash transfer services can enabletransactions without formal bank branches.Safaricom’s M-PESA service, for example,licenses small retailers to serve as local agents.

• Bring sustainable trade into the mainstream.Consumers in developed markets are increasinglywilling to pay a premium for fair-trade orsustainable trade products, to benefit BOPproducers. For example, in 2009 Starbucksbecame the world’s largest buyer of Fair TradeCertified coffee, which it sells in 43 countriesworldwide.[70] In such a case, companies’branding and marketing efforts should translatethe added value from sustainable procurementinto brand equity, to enable premium pricing.

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5.3 Educate through marketingcommunication

Because BOP consumers are often unfamiliar withnew products and their benefits, marketingprogrammes are more effective if they containeducational as well as persuasive messages.

• Educate about product benefits. Educatingfarmers and input retailers on using new productsor technologies not only raises awareness of thebenefits, but also ensure that farmers reap the fullrewards, thereby raising incomes and demand forthe products. Free trials and clear instructions areuseful marketing tools, while individual training iseven better. In Kenya for example, BayerCropScience trains agricultural input retailers onthe benefits of new fertilizer kits. The companyhas set up special demonstrations, exhibitionsand field days on model farms. Similarly, in theprogramme run by CNFA/AGMARK (AgriculturalMarket Development Trust), farmers receivetraining on how to get the best results fromagricultural inputs and farming techniques.[71]

• Create word-of-mouth advocacy networks.Advocacy networks are powerful sales tools inthis market. Nestlé’s success with its biogesterinstallation programme in China, for example, isdue largely to the participation of local championswho educate farmers about the benefits of theprogramme and secure their cooperation.[62]

• Aim for trust and identity in branding. Anotherconstraint on demand, from a rural consumer’sperspective, is the lack of information aboutproduct usage and benefits for first-time users.There are very few established brands in thesemarkets, and few consumer-protection regulationof truth in advertising or labelling. As a result,poor consumers are generally more willing toaccept an unfamiliar product if it carries a well-known brand. New products can therefore benefitfrom being launched under a familiar brand nameor endorsed by a trusted institution.

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Successful partnership strategies rely on first makingan effort to understand the local context and earn thecommunity’s goodwill. Unilever in India, for instance,insists on all its managers spending time each yearin BOP homes and villages. Nestlé has invested inimproving basic facilities, such as clean drinkingwater and latrines in schools, in the Indian villageswhere it procures milk. Although the facilities are notdirectly related to the actual procurement of milk, theyaddress local needs and strengthen the relationship.[72]

Given the key role that women play in food production,including local women in the value chain is anotherapproach to partnering with communities. LandO’Lakes International Development (IDD), for example,insists that women make up at least 30% of the membersof its partner dairy associations in Zambia. This hasresulted in more women moving into the formal sector.

The next step is to align the community’s interestswith those of the company to minimize oversight toensure compliance with standards. Land O’Lakes

International Development works with the Zambiangovernment extension system to organize small-holder milk producers into dairy associationsthrough which they can access the technicalsupport they need to enhance their milk productionand ensure quality. Land O’Lakes IDD ensures theassociations are accountable to their members andviable as business units, so that they can continueto provide consistent quality over time.[73]

Aggregating production can also help guarantee aconsistent flow of goods, despite individualvariations within the group. For instance, womenoften need to balance farm labour with domesticresponsibilities; households also face varying shocksand demands (for example, funeral or marriage costs)which affect their productivity. By working collectively,producers can organize their workflow to meetproduction commitments as a group.

Box 11 – Successful partnering with local communities

5.4 Collaborate to form non-traditionalpartnerships

Serving the BOP requires companies to go beyondtraditional “we-make-it-and-you-buy-it” relationshipsto include the BOP in production and distribution aswell as consumption. This approach has potential tolower costs and expand distribution. Collaboration isneeded on two levels: partnering with localcommunities, and collaborating with otherunconventional partners. Collaboration with localcommunities captures “hidden” assets in the form ofuntapped resources and local knowledge. Inaddition, by increasing local incomes, companiescan enhance the ability of BOP consumers topurchase goods and services, thereby generating avirtuous economic cycle with built-in sustainability.Additional non-traditional partners include othercompanies (even competitors), civil societyorganizations and government. Such collaborationhelps to share marketing and distribution costs andovercome gaps in market infrastructure.

Unlock local potential by engaging withcommunitiesPartner with communities rather than individuals.One of the biggest challenges facing companiessourcing from local producers is the expense ofcollecting small quantities from widely dispersedsources. One solution is to source products fromcommunity aggregators rather than from individualproducers (see Box 11).

• Invest in talent and expertise building. Anotherdrawback to using local producers is their lack oftraining. However, most companies are reluctantto invest in training a talent pool that could beemployed by its competitors. Such investmentsare therefore often unprofitable for a singlecompany. One solution is to set up trainingconsortiums with government organizations,competitors, NGOs and companies from otherindustries. ECOM Agroindustrial Corporation’ssustainable high-grade coffee procurementinitiative in Honduras exemplifies this approach.ECOM developed a certification programme forcoffee growers with Utz Certified and others, andengaged the Coffee Support Network to help pilotthe programme. The company created and

funded a local NGO, Alianza para laSostenibilidad (APS) to provide technicalassistance and promote best practices amongfarmers. Several other organizations, such as ElInstituto Hondureño del Café (IHCAFE), Centre decooperation Internationale en RechercheAgronomique pour le Développement (CIRAD),and CropLife, pitched in with their expertise insuch areas as soil testing, fertilizer training andfarming practices. The government’s Secretariatof Labour also helped to educate farmers onrelevant labour laws.[64]

• Create incentives that encourage self-governance.Many firms are reluctant to source from the BOPbecause they believe the quality of produce willbe sub-standard. While quality control systemsare costly to establish and maintain, it is possibleto set up low-cost local checkpoints by aligningthe interests of co-producers. This might involveincluding them as shareholders, rather than justsalaried employees. Companies can achieve bestresults by adopting a systematic approach. Firstly,they need to design processes and products thatcan easily accommodate local participation.Secondly, co-producers must be given thenecessary skills. Finally, companies should bringin other players to collaborate on solutions andharness hidden assets to make it possible for co-producers to be self-monitoring.

The Integrated Tamale Fruit Company’s approachin Ghana is illustrative. Instead of acquiring a verylarge piece of land, which is physically andfinancially impractical, the company generateshigh volumes through an out-grower scheme,which started in 2001 and today includes 1,300

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farmers. The company provides the out-growerswith farm supplies and technical services andoffers bridge loans that can be repaid when thefarmers sell their produce. The arrangementallows the company to source a reliably largevolume of good quality organic mangoes, andfarmers can enter mango production knowingthey have a ready market for the crop.[74]

Form deep collaborations withunconventional partners

• Share products and assets. Some companieshave formed partnerships to bundle products forsale, share distribution and retail networks, andaccess common logistics and facilities. Considerthe partnership of Indian Farmers FertilizerCooperative Limited (IFFCO) and Bharti Airtel, atelecommunications company. Airtel realized thatIFFCO had established an efficient channelreaching widely dispersed rural farmers, so itpartnered with the cooperative to market anddistribute its own products to Indian farmers.[75]

Another form of channel sharing might involve aglobal food and beverage company sharing R&Dexpertise with more local companies to makeimproved nutrition foods available at affordableprices. The local companies provide a deeperreach and more efficient sales force, while theglobal company brings superior R&D expertise.The global company might even be able toreceive government benefits for such initiatives.Nutriset, French producer of the fortifiedPlumpy’Nut paste, is rolling out licensing to localoperators located closer to its customers.Nutriset is also transferring production know-howand expertise as part of these licensingarrangements.[32]

Partnering with competitors can also haveadvantages. The mobile phone industry is highlycompetitive; yet, in India, three of the largestplayers – Bharti, Vodafone and Idea – havecreated a joint entity through which they sharetelecom towers in rural areas. That has made itpossible for them to reach over 400,000 villagesacross the country, achieving a quicker rollout ona more cost-effective basis.[76]

• Share capabilities and knowledge. Organizationscan collaborate in more complex ways: sharingknowledge for product innovation, processinginformation, and increasing efficiency. Forexample, farm equipment makers can extendcredit if they have access to the knowledge ofmicro-finance institutions about thecreditworthiness of groups of individuals. Aninsurance company might enter the low-incomeagricultural market through the sales channel oflocal producers or distributors. Such practiceshelp to eliminate market inefficiencies and givecompanies access to critical knowledge onmarket movements and local consumerbehaviour.

• Make partnerships work. Non-traditionalpartnerships can help producers, partners, andconsumers develop valuable skills that generatelong-term profits. They also help to build mutuallybeneficial infrastructure for all stakeholders,including governments. To make them work,companies need to assess their own capabilities,assets, and knowledge base; then identifypotential partners based on the resources theyneed. The potential for collaborating with availablepartners can be analysed with a long-term view ofprofits. Partners need to establish cleargovernance structures, define responsibilities andagree on the distribution of outcomes so thateveryone benefits. Finally, before work begins,they need to ensure that their systems andperformance measures are aligned. One of themost important considerations when partnering inthe BOP market is that some companies have ahead start. These leaders could be active driversor facilitators, and not merely participators. Suchcompanies can orchestrate partnershiparrangements in which it is easy for new playersto enter and old ones to leave, maintainingflexibility to adapt to changing conditions.

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5.5 Unshackle the organization

One of the largest stumbling blocks encountered inthe BOP market is the lack of incentives or supportthat would enable BOP initiatives to succeed. Whenthey first enter emerging markets, most multinationalcompanies focus on sourcing from or serving themore affluent segment. As a result, their cultures,organizational structures, and metrics may need tobe substantially revised to enable effectiveoperations in BOP markets. Companies canconsider several strategies: • Demonstrate top-down commitment. Success in

BOP markets requires strong top-downcommitment and active advocacy within theorganization. These initiatives should be on seniormanagement’s radar and receive disproportionalrecognition, in order to motivate employees to bea part of the effort.

• Create focus and accountability. In addition tostrong top-down commitment, success requiresthe presence of a few internal “champions” todrive the initiatives. Organizations will need tolook out for champions from both within andoutside the company, finding people who arepassionate and have the drive and conviction tosucceed. Some companies establish a separateunit for innovation led by a senior executive.Several large financial institutions, such asBarclays, have departments focusing on micro-finance opportunities to tap the low-incomesegment.

• Provide decision rights, autonomy and flexibility. A centralized, top-down approach can sometimesinhibit the initiative required to develop innovative

approaches. Therefore, it is important toempower the separate departments andchampions so they are not constrained by thenorms and processes that govern developedmarkets. Business units targeting the BOP shouldbe lean and agile, minimizing costs whilemaintaining flexibility to adapt and innovate.

• Establish objective metrics. BOP businessinitiatives require time and resources, and oftengenerate lower returns or require a longer initialpayback. Companies may need to re-evaluate themetrics they use to make business decisions. Forexample, it may be helpful to define differentmetrics for the short and long term. In the shortterm, when companies are investing in a productor market – selling processed foods in a marketwhere they are considered a luxury, for example –volume and market growth could be key metricsof performance. In later years, profitability andreturn on investment could become moreimportant measures.

• Provide access to capabilities and knowledge.Developing cross-organizational networks canhelp to design new offerings, distribution channelsand marketing programmes. Organizations canaccelerate the innovation process by exchangingbest practices with business units already servinglow-income consumers. Global companies canincrease their presence in emerging markets toachieve economies of scale. Acquiring orpartnering with local companies can speed thedevelopment of appropriate brands and businessmodels for the BOP market. Creating synergiesbetween a company’s core business, CSR, andphilanthropic activities can also yield benefits.

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Agricultural input company Syngenta'sphilanthropic activities are consolidated in theSyngenta Foundation, an institution focused onincreasing opportunities for subsistence ruralcommunities through innovative science.Although operating on an independent mandate,

the Syngenta Foundation can tap into theknowledge, technology and human resource baseof the parent company Syngenta AG. Thisincreases the benefits on the ground whileinfusing insight on low-income farmers into thecommercial operations of the company.[77]

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1. Create life-enhancing offerings • Price for the budgets of low incomes • Tailor products to meet local needs and

preferences • Develop environmentally sustainable

approaches2. Reconfigure the product supply chain

• Source from local producers• Broaden reach and save costs by leveraging

local distribution channels• Find creative ways to overcome infrastructure

constraints• Bring sustainable trade into the mainstream

3. Educate through marketing communication• Educate about product benefits• Create word-of-mouth advocacy networks• Aim for trust and identity in branding

4. Collaborate to form non-traditionalpartnerships

• Partner with communities rather thanindividuals

• Invest in talent and expertise building• Create incentives that encourage self-

governance• Share products and assets• Share capabilities and knowledge• Make partnerships work

5. Unshackle the organization• Demonstrate top-down commitment• Create focus and accountability• Provide decision rights, autonomy and

flexibility• Establish objective metrics• Provide access to capabilities and knowledge

Box 12 – Five Strategies for Success: Designing Business Models to Include the Next Billions

The business models discussed in this report havesignificant potential to both benefit the poor, andcreate new business opportunities for companies.They present opportunities for the poor to improvefood production and food security, raise incomes,increase access to essential goods and services,and empower small-scale entrepreneurs. At thesame time, they offer the prospect of generatingcommercial returns and driving economic growth,essential factors in the sustainability and scalabilityof any initiative. Yet, despite this seemingly “win-win”situation, many of the initiatives remain limited intheir scope, either because they are at an earlystage of pilot testing, or because they have provedsuccessful in one setting but have not been adaptedto others. Given the broad range of BOP needs andopportunities that could be addressed by thesemodels, the major question is how to scale them up.The key challenge for companies is to mainstreamBOP inclusion into standard business operationsand to work with other stakeholders to apply effectivemodels across many different geographical settings.

Scaling up BOP business strategies requires adecentralized and localized approach, in whichsuccessful concepts are adapted for transfer fromone region to another, often with a new set ofpartners and collaborators. Maintaining a stronglocal focus helps to target opportunities and reducesrisks among markets that may appear similar but infact are highly diverse in their needs. However,localization makes companies highly dependent onlocal conditions and actors to reach their goals.Achieving scale in these business models, therefore,often requires cooperation among many actors.Governments, NGOs, donor agencies, andinternational research organizations can play key

roles in supporting private-sector growth in BOPmarkets through strengthening the incentives forbusiness engagement, providing complementaryfunding, sharing experiences and building capacity.

6.1 Strengthening incentives forbusiness engagement

The economic value locked within BOP communitiesis not easy to access. Over the past decade, due toa perceived lack of short-term financial rewards,many BOP projects have been funded throughcorporate social responsibility (CSR) initiatives orexternal funding, and this tends to constrain theirscalability. The most direct route to strengthen profitincentives is for companies to develop broader andbetter strategies for generating commercial returnsat the BOP. A number of examples have beenpresented in this report. However other stakeholderscan also take specific actions to boost incentives,remove barriers, and reduce the costs that impedecommercial activity. By aligning incentive structuresand combining capacities, the various actors involvedin food value chains can strengthen the businesscase for larger-scale pro-poor engagement.

Governments, for example, can play a key role inestablishing incentives for pro-poor andenvironmentally responsible corporate behaviourthrough enabling policies and regulations. Publicpolicy determines the conditions for operationsalong the entire food value chain, both locally andglobally. On a macro level, international trade policygreatly affects the viability of export and importbusiness models. Nationally, government regulationson product safety, commodity pricing, labour andland rights, contract enforcement, cross-border trade,and many other issues affect business operationsdirectly along the food value chain. India’sderegulation of the retail sector, for example, hasenabled the growth of rural retail hubs, such asGodrej Aadhar and DCM Shriram ConsolidatedLimited (DSCL) Hariyali; while in Nigeria, increasedtariffs on rice imports has provided an incentive forlocal production. In Kenya and Malawi, targetedfertilizer subsidies and credit services for poorfarmers have strengthened private-sector agro-dealer networks. In many BOP markets, ineffectiveor poorly implemented policies and regulations

Chapter 6 – Conclusion: Key Actions for Scaling up

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constrain or discourage business activity. However,by structuring targeted incentives within an effectiveenabling environment, governments can acceleratepro-poor business growth.

6.2 Prioritizing and sequencingbusiness initiatives

Companies considering initiating or expanding theirengagement with the BOP should prioritizeopportunities based on their own capabilities, theirlong-term strategic goals, and the market potential.Defining metrics tailored to BOP marketcharacteristics will allow the company to assess thevalue of new models in both commercial and socialterms. Advance planning is key to allow sequencingof initiatives and partner involvement in order tobridge the gaps in food value chains. For example,companies considering sourcing products at largescale in specific regions may need to begin buildinglocal capacity and organizations – with government,NGO or university partners – far in advance ofinitiating production. Non-business organizations cansupport such planning processes, or bring businessinto ongoing public-sector planning efforts.

6.3 Providing complementary fundingand capacity

Essential hard and soft infrastructure – from roadsand electricity to farmers’ organizations – is oftenmissing in the BOP environment. In some settings,companies themselves can fill these gaps, asdiscussed in Chapter 4. However companies mustoften rely on other stakeholders, includinggovernments and NGOs, to provide the missing linksthat would make the business models work. Thosestakeholders, in turn, require public or donorfinancing to execute their roles.

Public-sector investment in key services is critical forfood value chain business models. In addition, publiclyfunded agricultural research can play a powerful role.To secure such resources, political will is essential,especially when governments face resource constraints.In 2003, African governments committed themselvesto dedicating 10% of national budgets to theagriculture sector, but today the regional average isstill only 4%.[78] Development assistance thereforeplays a key role in enabling public-sector investment

in the food value chain. In 2007, after 20 years ofdeclining investments, the World Bank pledged to asubstantial increase in its commitment to agriculturesector finance, and encouraged bilateral donoragencies to do the same.

Both private- and public-sector donors – includingcharitable foundations, individuals and bilateral aidagencies – play a key role in funding NGOs that enablebusiness linkages with the BOP. NGOs bring expertisein organizing and capacity building at the local level,and can create the trust needed to work effectivelywith local communities. NGOs often act as facilitatorsamong the groups of farmers, entrepreneurs, oreven consumers who will determine the success ofa business model, particularly in its early stages.Companies partnering with NGOs will need either toprovide the necessary financing directly or, more often,to find a funding partner. For example, the Bill &Melinda Gates Foundation made a US$ 47 milliongrant to Technoserve Inc. to assist coffee growers inthree East African countries in securing premium pricesfor high-quality Arabica coffee. This grant was partof the foundation’s US$ 306 million commitment toagricultural development announced in early 2008.[79]

6.4 Facilitating corporate engagement

Companies can initiate cross-industry andmultistakeholder collaboration through businessalliances or individual partnerships. However,coalescing around common interests or finding theright partners often requires facilitation by a thirdparty. Experts and intermediary organizations canassist companies in forming the necessarypartnerships and business strategies. GAIN’s workwith companies, governments and otherstakeholders on food fortification initiatives is anexample of such facilitation. Companies can alsoplay a convening and catalyzing role. YaraInternational, a leading fertilizer company, hosts anannual conference on the African Green Revolution,engaging companies, government officials, donorsand civil society representatives. The companyawards a Yara Prize to one or more individuals eachyear for outstanding contributions towards theAfrican Green Revolution in support of theMillennium Development Goals (MDGs). The eventhas helped expand links and catalyse joint effortsbetween public and private-sector actors.[80]

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Research organizations and NGOs can also helpidentify viable market opportunities among the BOPand bring them to the attention of the private sector.For instance, the World Resources Institute’s Next 4Billion report estimated the size of the BOP market.The Coca-Cola Company conducted a collaborativeresearch project with the International FinanceCorporation (IFC) and Harvard University toinvestigate ways of augmenting the economic andsocial impact of its “manual distribution centres”(MDCs), which are run by local entrepreneurs. Thecompany invited partners to participate in an “in-market learning laboratory” to define improvementson the ground. The result will be an upgraded modelapplied for up to 2,000 new independent distributors(employing up to 8,400 people) in Africa by 2010[81].At a local level, the Tegemeo Institute in Kenyaconducted a study to identify commercially viableopportunities in the food sector for the WorldEconomic Forum’s Business Alliance AgainstChronic Hunger, which catalysed corporateinvestments to develop those opportunities.[82]

6.5 Establishing models and buildingmomentum

Success breeds success. Proven business modelsare often adapted by other companies. The successof Danone’s dairy initiative with the Grameen Bankhas prompted other large food companies to initiatesimilar enterprises. The success of companies suchas Unilever and Nestlé has encouraged others todistribute their products through micro-entrepreneurs.The Grameen Bank is widely credited for establishingthe viability of microfinance provision for the poor.

Stakeholders, such as government, academia,international organizations, NGOs and the media,can accelerate this process by highlighting effectivemodels, facilitating learning and knowledge-sharing,and monitoring and evaluating results. Raising thevisibility of successful emerging-market businessinitiatives creates both learning and goodwill forcompanies. The Business Call to Action (BCtA), forexample, initiated by United Kingdom Prime MinisterGordon Brown, encourages companies to implementinnovative business models that support the MDGson reducing hunger and poverty. Corporations have

announced BCtA commitments at high-profile globalevents, attracting substantial media coverage.

Changing consumer preferences can be animportant driving force. Growing awareness ofpoverty issues has raised consumers’ willingness topay a premium for locally sourced, fair trade, orenvironmentally sustainable products, encouragingmore companies to enter these markets.

6.6 Collaborating to accelerate progress

Most of the business models discussed in this reportwere neither conventional nor easy to initiate in theirearly stages. To unleash the large potential that existsfor both the BOP as well as for businesses, commitmentis required not only from companies, but also fromgovernments, NGOs, donor agencies, internationalorganizations, research institutions and universities,as well as the general public. Each stakeholder hasa unique set of capacities and mandates that canoften be enhanced or extended through effectivecollaboration with others. Therefore, an “orchestrator”is often needed to understand their complementaryroles and capacities, promote the potential value ofcollaboration, and facilitate collaborative efforts.

The following table outlines actions that can betaken by different stakeholders to enable furtherexpansion of the business models discussed in thisreport. A more detailed set of actions targeted tospecific business models is included in Appendix 4.

The innovative approaches described in this reportcan open up avenues of new growth opportunitiesfor companies that are moving into BOP markets.When undertaken in partnership with poorcommunities, such ventures can catalyse newopportunities that hold the potential to transform thelivelihoods of the poor. Companies that establishworkable, profitable and scalable business modelsto include the BOP will secure a strong advantageboth commercially, and in terms of community andpartner relationships. Success in the end will requirenew thinking, close coordination, and alliancesamong unconventional partners – government, civilsociety organizations and BOP communitiesthemselves.

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Applying Stakeholders’ Capacities to Accelerate Business Engagement

Stakeholder group

Companies

Government

NGOs

Donors,internationalorganizations,and research/academicorganizations

Core capacities and actions

• Invest in R&D and new product development for the BOP market• Innovate to adapt supply chains and distribution networks• Partner or collaborate with others to align complementary investments, share

supply and distribution costs, and improve the enabling environment• Invest in capacity building of suppliers and distributors• Target marketing to boost demand among the BOP• Realign corporate incentives to reward BOP market development• Share best practices internally and externally • Create directives for social responsibility within business supply chains

• Invest in infrastructure to accelerate agricultural market development (e.g.transport, storage, water, energy)

• Invest in services to accelerate agricultural market development (e.g. agriculturalextension, entrepreneurship training)

• Reform policies to encourage pro-poor service provision (e.g. finance, telecom)and stimulate agriculture sector development, trade and competitiveness

• Apply targeted, time-limited subsidies to improve access to essential goods (e.g.fertilizer, fortified foods)

• Undertake or fund R&D for products targeted to the BOP• Target public education campaigns to stimulate demand for fortified foods• Convene, align and mobilize stakeholders around common priorities

• Advise companies on poor communities’ needs and potential opportunities• Organize small-scale producers and facilitate linkages with buyers• Strengthen producer capacity and product quality through training• Train and facilitate entrepreneurship development for retailers• Certify, monitor and evaluate business models• Advocate to strengthen public support and investment in poor communities• Highlight effective models, share best practices and lessons learned• Facilitate partnership development among stakeholders

• Undertake or fund R&D for new product development targeted to poorcommunities’ needs

• Conduct research to identify pro-poor business and market developmentopportunities and communicate them to stakeholders

• Identify key public-sector policy and investment priorities• Convene, align and mobilize stakeholders around common priorities• Fund training and capacity building for farmers and entrepreneurs• Fund the start-up phase of new business models to enable experimentation• Conduct public education campaigns on key products or concepts• Monitor, evaluate and assess impacts of business models• Share best practices and lessons learned, regionally and globally

Base of the pyramid (BOP)The 3.7 billion people populating the lowest incomestrata in the world, who earn up to US$ 3,000 perperson per year (in 2002 PPP$), or roughly US$ 8per person per day (in 2002 PPP$).

BOP Entrepreneurs Sometimes referred to as entrepreneurs. These areindividuals at the BOP who are conducting abusiness activity of some kind (selling, trading, etc).In this report, we refer to entrepreneurs as distinctfrom producers or farmers, even though the sameindividual may occupy both roles simultaneously.

BOP PenaltyThe additional costs for basic goods and servicesthat BOP customers often pay, compared to higher-income customers. For example, water trucked intoslums and sold to households often has a higherunit price, and lower quality, than water provided tocentral neighbourhoods through municipal watersystems.

BOP Producers Sometimes referred to as producers. Refers tofarmers who can be classified as part of the BOPdue to their income levels.

Business enablersCompanies providing goods and services whichenable commercial and market-based activity. Thesecan include financial services, telecom, energy,transport and logistics products and services,among others.

Business modelThe product or service offering, as well as theoperational processes and financial arrangements,which comprise a specific private-sector activity orprogramme. “Operational processes” includepreparation and delivery of the product to thecustomer. “Financial arrangements” includeinvestments, credit, costs and revenue that lead tovalue creation. “Business model innovation” involvessignificant changes in two or more components ofthe business model to redefine a company’s positionin the market and create superior value.

Civil society organizationsNongovernmental, not-for-profit organizations whoseactivities are dedicated to the public interest in someway. These can include NGOs, cooperatives, citizengroups, charitable foundations and internationaldonor organizations.

Discretionary incomeSurplus income left after individual or householdspending on essentials such as food, fuel, housing,medicines and transport. Also called “disposableincome”, it is often spent on information andcommunication services (ICT), higher education,packaged goods, durables, and lifestyle andentertainment goods and services.

Food Fortification The process of adding micronutrients to foodproducts – either staple foods such as salt and flour,or packaged products such as biscuits. This is doneto prevent or remedy nutritional deficiencies in thetarget population.

Next billionsConsumers, producers and entrepreneurs within theBOP who are currently excluded from formalmarkets, but could be engaged profitably bycompanies through innovative business models.

Purchasing power parity (PPP)The value of a given amount of foreign currency,expressed in terms of the US dollar value of a similarbasket of goods. PPP is based on the theory oflong-term equilibrium exchange rates, which statesthat exchange rates of any two countries tend toequalize their purchasing power in the long term. In2005 for example, US$ 1 could be exchanged for7.6 Chinese Yuan. However, the PPP value of US$ 1in China was 1.8 Yuan, meaning that it would take1.8 Yuan to purchase goods and services valued atUS$ 1 by the World Bank.

Smallholders Also referred to as small farmers or producers.Refers to farmers whose livelihood depends on afarm plot of 2 hectares or less.

Terminology

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| 53

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54 |

This reports quotes existing data from secondarysources, and also provides new estimates usinginputs from various sources. This appendixdiscusses calculation methods and sources used forthe following estimates presented in this report:1. Size of the BOP population: This was

estimated at 3.7 billion in 2002. Data is derivedfrom 2002 data sources, based on data in twoleading reports (The Next 4 Billion by the WorldResources Institute, 2007[1], and the 2007 WorldDevelopment Report by the World Bank[2]) .

2. Total BOP income: This was estimated at US$2.3 trillion in 2008. In this case, 2008 data wasestimated since no comparable, widelyrecognized data on aggregate income andexpenditure data of the BOP are available. Theestimate is based on extrapolation from incomestatistics of the BOP for 2002.

3. BOP income growth rates: We calculated 8%growth rates in the BOP market (based on 2002-2008 data) which, if projected forward to 2015,lead to a total market of US$ 4.0 trillion.

4. Population breakdown: Starting with a worldpopulation of 6.3 billion, the total number of ruralBOP living on smallholder farms is calculated tobe 1.5 billion in 2002.

5. Food expenditure of the BOP: This wasestimated at US$ 1.3 trillion in 2008.

6. Total income of the rural BOP population:US$ 850 billion-1.1 trillion. Data is presented for2008.

All statements made within this report refer tonominal US$ unless otherwise mentioned.

1. Size of the BOP population

The following steps were taken to arrive at an overallpopulation estimate of the BOP:1. Starting point: Database of The Economist

Intelligence Unit (EIU) 20023, which presentshousehold population numbers distributed overnominal household income levels.

2. Establishing upper income threshold for the BOP:The income threshold of US$ 3,000 per personper year equivalent to US$ 8 per day (in 2002PPP$) was used, presented in the WorldResource Institute’s 2007 report, The Next 4Billion. WRI determined this threshold based onglobal income-expenditure surveys.

3. Conversion of PPP income per country/region toincome in nominal US$: US$ 3,000 PPP wasconverted to nominal US$ for each country,based on the PPP to local currency factors fromthe International Monetary Fund and exchangerates from US$ to local currency for 2002. Thiswas done in order to compare EIU income strata(presented in nominal US$) to income thresholdsfor countries/regions (presented in US$ PPP).Conversion factors for entire regions such asAfrica were obtained from secondary research.

4. Conversion of WRI individual incomes tohousehold incomes: Adjustment of incomethresholds from individual to household levelswere conducted to compare EIU income strata(presented for households) to income data forcountries/regions (presented for individuals).

5. Total BOP population: BOP population from eachcountry/region were summed to create anaggregate total. BOP population from eachcountry/region is calculated by comparing theadjusted WRI income data to the EIU incomestrata database. If income levels were betweenpre-specified income strata (e.g. US$ 1,000-2,000), the population within the strata wasassumed to have a uniform distribution todetermine the population within that level.

This analysis does not utilize the World Bank’s latestrevised definitions of the poverty line (Source: PolicyResearch Working Paper of the World BankDevelopment Research Group, August 2008 4). Thisis largely due to lack of information on PPPadjustments made on a regional basis (which theWorld Bank states are a departure from pastmethods of calculating populations below thepoverty line). Hence, our population estimates differfrom the latest published World Bank report.

Appendix 1Methodology for Estimations of Population and Income

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2. Total BOP income

The following steps were taken to arrive at an overallincome estimate of the BOP:1. Starting point income of 2002: Database of the

Economist Intelligence Unit (EIU) 2002 3. TotalBOP income of each region/country wascomputed as the weighted sum of the averageincome for each income bracket (e.g. averageincome of the bracket US$ 1,000-2,000 is US$1,500) and the population within that incomebracket. This assumes, however, that thepopulation within an income bracket is uniformlydistributed, an assumption consistent with Step 5in Section 1 in interpolating populations for givencut-offs. This results in an income pool of US$1.7 trillion in 2002.

2. Computing income growth figures: Averageincome growth for the BOP income brackets ineach country were computed from 2002 to 2008.The resultant growth figure was determined to be5% nominal rate per annum. Note that this is adifferent figure from the 8% historic growth 2002-2008 (explained below), which also captures the“wealth effect”, e.g. upward migration of the BOPto higher income brackets, as explained below.

3. Computing 2008 income figures: The growth ofthe aggregated/total income of each segment fora specific region/country was used to extrapolatethe total BOP income of 2002. Subsequently, thisdata was used to calculate today’s (2008) incomepool of US$ 2.3 trillion.

3. BOP income growth rates

To project the potential growth of BOP income overtime, the historic growth rates were calculatedbased on 2002-2008 data and then applied forward,as follows:1. It was assumed that BOP incomes would migrate

upward only, into higher income brackets, overtime. The potential for downward migration wasnot factored into the estimate.

2. The aggregated wealth of the migrators wasdetermined over time for each region. This wasdone by computing the number of people leavingthe BOP income bracket every year using the EIU’spopulation statistics from the years 2002 to 2008.

3. The aggregated wealth of migrators was added tothe aggregated wealth of the non-migratory BOPpopulation. This was done knowing the numberof migrators every year and assuming that theaverage income of these migrators is the incomebracket immediately above the BOP.

4. The resulting growth rate of 8% per year wasused to project the combined wealth of the BOPpopulation from 2008 to 2015.

Given that the food and economic crises of 2008have negatively impacted the livelihoods of the poorand emerging market growth rates to a degree notyet fully quantified, the projected continued 8%growth rate should be considered as a potentialscenario but not a definitive prediction. As ofDecember 2008, the World Bank was projectingcontinued growth in emerging markets for 2009,albeit at lower levels than previously expected.[30]

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4. Population breakdown: Estimating rural BOP smallholders and their families

The table below provides an overview of sources and the calculation method used to estimate the totalpopulation of rural BOP smallholders and their families, from a starting point of world population. All numbers arefor 2002.

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Source

• United Nations populationdivision “World population” (2002)

• World Bank “Agriculture forDevelopment”, 2008, see listbelow[2]

• World Resources Institute, TheNext 4 Billions, 2007[1]

• The Economist Intelligence Unit,2008 [3]

• World Bank, Agriculture forDevelopment, 2008[2]

• World Bank, Agriculture forDevelopment, 2008[2]

Method of classification

–

• Classification of developingcountries as used by the WorldBank, “Agriculture forDevelopment”, 2008 report

• BOP income threshold of US$3,000 (2002 PPP$)

• 74% rural poor of total poor• Estimation of 56% rural of BOP

excluding poor (based ontriangulation of numbers for ruralpoor and rural “Rest of the world”)

–

Category

World Population – 6.3 billion

Rest of the world – 4.6 billion(non high-income countries)

Base of the Pyramid – 3.7 billion

Rural Base of the Pyramid – 2.5 billion

Rural BOP smallholders andtheir families – 1.5 billion

5. Food expenditure of the BOP

To calculate the total spending on food by individuals at the Base of the Pyramid, percentages of averagehousehold expenditure on food for the three subcategories of the BOP have been determined:

Population (Billion)

1.0

1.6

1.1

3.7

Portion of household expenditurespent on food

73%

59%

41%

57%

Category

Lowest segment

Middle segment

Top segment

Total

The average household food expenditure (57%) was multiplied with the BOP total income of US$ 2.3 trillion togenerate a total estimated food expenditure of US$ 1.3 trillion.

Sources: World Resources Institute, The Next 4 Billion, 2007[1] and The Economist Intelligence Unit PopulationStatistics Database, 2008.[3]

6. Total income of the rural BOPpopulation

The total income of the rural BOP population isbased on the net income of individuals. Thisconsists of labour income and/or margin.

The income of the rural BOP varies largely acrossregions and type of products. Extensive bottom-upresearch will have to be performed to determine amore precise estimate of rural BOP income. Theestimation of rural BOP income presented in thisreport (US$ 850 billion-1.1 trillion) is based on a top-down calculation method. The main data sourcesused for this calculation are The Next 4 Billions,World Resource Institute, 2007[1]; Agriculture forDevelopment, World Bank, 2008[2]; the FAOdatabases[8],[11]; and the Trading Up Report from theRoyal Tropical Institute.[5]

The following steps were taken to arrive at the totalincome of the rural BOP population: 1. Total BOP population was categorized based on

geography (countries/regions) and source of income(e.g. agricultural production, retail, trade, etc.)

2. For each subcategory, income was estimated onthe basis of input numbers from the sourcesabove from local databanks for eachcountry/region, such as IRS, IFAD [6],Goscomstat[7], USDA Reports[9], and the ChinaBureau of Statistics[10]

3. Income from each subcategory was summed toestimate total income of the rural BOP population

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This report features several examples and casestudies of BOP business models. These casestudies represent a wide array of geographicregions, industry sectors, partners, and businessmodels. They are intended to illustrate high-qualityand innovative business approaches.

The case studies were selected through a rigorousscreening process. The report team conductedresearch of secondary sources (60 publishedreports, several organizational databases and Webresearch) and primary sources (company andorganizational interviews and submissions) andcreated a database of 200 case studies with thefollowing characteristics:1. Business-led initiatives (or those featuring strong

private-enterprise engagement) that are proven orintended to be commercially viable, and do notdepend on donor funding or subsidies for thelong term

2. Targeted to BOP consumers, producers andentrepreneurs

3. Demonstrable social benefits, such as increasedincome; creation of new market opportunities; orprovision of access to needed goods and services

4. Strong potential for scaling across multiplegeographies, based on existing record orpotential for replication

5. Relevant to the food value chain, or offeringstrategies or insights (such as retail franchising)that could be applied to food value chainbusiness initiatives

To determine which case studies to include in thereport, the team (comprised of employees of theWorld Economic Forum and The Boston ConsultingGroup), applied a second filter to select cases withthe following characteristics:1. Innovation in the business model, for example, a

new product design; alternate go-to-marketstrategy; unusual partnerships

2. Relevance to the themes or ideas discussed inthe report

3. Novelty within the public sphere; initiatives thathad already received heavy international publicitywere de-emphasized in favour of lesser-knownbut equally valid examples

4. Partner involvement, illustrating collaborationbetween sectors; government engagement; orother actors

As a final step, selected case studies were evaluatedby an impartial team of expert reviewers from thefollowing institutions: The John F. Kennedy School ofGovernment at Harvard University; the WorldResources Institute, and The Schwab Foundation forSocial Entrepreneurship.

Case study reviewers were asked to evaluate thecase study selections according to the abovecriteria, taking into consideration additional factorssuch as regional balance. Feedback andrecommended additions from the expert reviewgroup determined the final selection of casesincorporated into the report.

While some of the case studies featured in thisreport have been independently evaluated, manyhave not. The authors themselves did notindependently evaluate the accuracy of casestudies. Future studies that independently quantifythe commercial and social outcomes of BOPbusiness models would be valuable to the broadercommunity of stakeholders interested in suchinitiatives. At present, there is limited availability ofsuch data.

Appendix 2Case Study Selection Process

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Appendix 3List of Case Studies Cited

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Aim of the intervention

Developing agriculturalinputs targeted to theBOP

Improving farmers’access to agriculturalinput

Improving logistics andwarehousing

Investing in intermediariesthat add value

Optimization of sourcingprocesses

Building markets forsustainable trade

Designing nutritious foodfor poor consumers

Expanding retaildistribution networks

Holistic Solutions

Organizationsinvolved/mentioned

IDE India

CGIAR

Syngenta AG

Godrej Agrovet, Tata Agrico

Bayer CropScience AG

Equity Bank, Government ofKenya

Bayer CropScience AG,HortiBrasil

Metro Cash & CarryInternational

Metro Cash & CarryInternational

TNT

Groupe Carrefour, Bimandiri

General Mills Inc.

Olam Ltd

SABMiller Plc

Unilever Plc

Kuapa Kokoo

Kraft Foods Inc.; RainforestAlliance

Britannia Industries Ltd,GAIN, Naandi

Nutriset S.A.

Zhenji, GAIN, China Centerfor Disease Control

Nestlé S.A.

Subhiksha Trading Services Ltd

DCM Shriram Consolidated Ltd

Mi Tienda

Grameen Danone Ltd

Chapter

BusinessSolutions toUnleash thePotential ofProducersandConsumers

Country/region

India

Latin America

Global

India

Kenya

Kenya

Brazil

Vietnam

India

Africa

Indonesia

China

Nigeria

Global

Africa

Ghana

Latin AmericaGlobal

India

Africa

China

Brazil

India

India

Mexico

Bangladesh

Example

Manually operated treadle pumps

Providing superior breedingmaterials to private seedcompanies

Introduction of new tropical sugarbeet variety

Godrej Aadhar rural retail hubs

Green World agro-dealer trainingprogramme

Agro-dealer funding withgovernment guarantees

Garantia de Sabor – qualitycertification standards to enableworldwide supermarket access

Farmer training and improvingskills of actors along the supplychain

Improved packaging of freshproduce to reduce post-harvestwaste

Logistical analysis

Preferential treatment of equitablesuppliers

Local corn sourcing for Buglessnacks

Building a local rice supply chain

Small holder sourcing strategy

Commercializing the Allanblackiaseed

Divine Chocolate – fair tradepremium chocolate brand

Sustainably traded coffee

Iron-fortified biscuits distributedthrough school feeding andcommercial channels

Plumpy'Nut – ready-to-eattherapeutic fortified food forchildren

Iron fortified soy sauce

Employing female entrepreneursfor last-mile distribution

Wholesaling through micro-retailers

Hariali Kissan Bazaar rural retailhubs

Providing a sourcing platform forsmall rural retailers

Shakti Doi yoghurt – locallyproduced, and distributed fortifiedfood

continued on the next page >>

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Providing marketinformation

Increasing access tofinancial services

Overcominginfrastructure gaps

Foodnet

IFAD

KACE

BT, Cisco, OneWorld

Qualcomm Inc., PlaNetFinance and China Unicom

Grameenphone, Telenor

Grameen Bank, ACSI,Accion

Citibank, BRAC, MFAnalytics

Globe Telecom Inc.

Safaricom, Vodafone

Standard Chartered Bank

Muthoot Fincorp

Equity Bank, USAID, IFADAGRA, Government of Kenya

ICICI Lombard, Swiss Re,BASIX

Rockefeller Foundation, theGatsby CharitableFoundation andVolksvermogen NV

DFID, African DevelopmentBank, CGAP, IFAD

Tiviski Dairy

IDEAAS

Motorola Inc.

Nestlé S.A.

Naandi Foundation, WaterHealth International USA,Tata Projects Ltd

ECOM Agroindustrial, UzCertified, IHCAFE, CIRADand CropLife

Businesssolutions toempowerentrepreneursand create anenablingenvironment

Uganda

Tanzania

Kenya

India

China

Bangladesh

Asia, Africa, LatinAmerica

Bangladesh

Philippines

Kenya

Pakistan

India

Kenya

India

Africa

Africa

Mauritania

Brazil

Namibia

China

India

Honduras

Market information throughmobile phones

First Mile – using “market spies”to gather price information

Market price information forfarmers via kiosks, SMS and anonline trading platform

Lifelines – voicemail service foragricultural information

Telecommunications access forentrepreneurs and microfinanceproviders

Rural Internet kiosks with telecomservices

Provision of microfinance services

Securitization of microfinanceloan portfolio

GCash mobile cash transferservices

M-PESA mobile cash transferservices

Kissan - credit card for farmers

Swarnavarsham – consumerfinancing scheme

Financing farmers and micro-enterprises (particularly agro-dealers) along the food valuechain

Rainfall indexed crop insurance

Africa Agriculture Capital – equityfunding for agriculture-sectorSMEs

Africa Enterprise Challenge Fund– equity funding for pro-poor businessventures in the agriculture andfinancial service sectors

Investing in cold chain storageand logistics

Solar power-based energysolutions for remote areas

Solar and wind power-basedmobile phone base station

Biogester – generating electricityon diary farms

Low-cost water treatment

Comprehensive trainingprogramme for coffee farmers

Aim of the intervention Organizationsinvolved/mentioned

Chapter Country/region

Example

continued on the next page >>

62 |

Create life-enhancingofferings

Reconfigure the supply

chain

Educationalcommunication

Creative collaboration

Unshackling theorganization

Providing complementaryfunding and capacity

ADM Cocoa BV, Mars Inc.and RaboBank

Land O’Lakes InternationalDevelopment

Unilever

Unilever

Starbucks

CNFA/AGMARK, RockefellerFoundation

Nestlé

Land O’Lakes InternationalDevelopment

Integrated Tamale FruitCompany

IFFCO, Bharti Airtel

Bharti, Vodafone, Idea

Barclays

Syngenta Foundation

Bill & Melinda GatesFoundation

The Coca-Cola Company,International FinanceCorporation (IFC) andHarvard University

BAACH Kenya, WorldEconomic Forum andTegemeo Institute

UnleashingPotential:Strategies forSuccess

Scaling upBusinessEngagement:Key ActionsforStakeholders

Cameroon

Uganda

Africa

India

Global

Kenya

India

Zambia

Ghana

India

India

United Kingdom

Colombia

Africa

Global

Kenya

UPCOCOA – building capacity ofcooperatives in the cocoa sector

Capacity building across the dairyvalue chain; developing standards

Popular brand of fortified foods

Shakthi Ammas – rural womenentrepreneurs to sell consumerproducts

Sourcing fair trade coffee fromsmall producers

Farmer training and educationalmarketing about agriculturalinputs

Improving local sanitation inpartner communities

Capacity building of farmerassociations and promotinggender equality

Encouraging self governance andself-monitoring of producers

Sharing distribution networks

Indus Towers sharing telecomtowers in rural areas

Dedicated micro-bankingdepartment

Syngenta Foundation – aligningphilanthropic activities withcommercial activities

Funding capacity-building forsmall-scale coffee growers

Collaborative research effort onManual Distribution Centers(MDCs)

Research to identify commercialopportunities for smallholders

Aim of the intervention Organizationsinvolved/mentioned

Chapter Country/region

Example

Business Models for Producers: Actions to Enable Scaling Up

Appendix 4Actions for Scaling Up Business Models

BusinessModel

Companies Governments NGOs Donors, internationalorganizations andacademia

Developingagriculturalinputstargeted tothe BOP

• Build insight into constraintsand opportunities of BOPfarmers

• Invest in R&D of agriculturalinputs-focused on BOP needs

• Collaborate with others toreduce costs and shareknowledge

• Public funding for localagricultural research institutes

• Improve education andtraining of agriculturalscientists

• Provide tax incentives forresearch

• Advise on communityneeds and identifyingappropriate targetgroups

• Facilitate introduction ofnew techniques andproducts

• Undertake or fund R&D;evaluate impact

• Disseminate informationon new products andbest practices

• Share data and bestpractices; highlightsuccessful models

Improvingfarmers’access toagriculturalinputs

• Establish or extend retaildistribution networks forinputs

• Empower agro-dealers• Provide credit to farmers

buying inputs and agro-dealers

• Minimize duties on essentialinputs

• Provide targeted, time-limitedfertilizer subsidies for poorfarmers

• Leverage existing institutionsand networks to reachunderserved areas

• Train agro-dealers andretailers on productinformation andbusiness skills

• Support impactevaluation process

• Fund retailer training andfinancial services

• Share data and bestpractices; highlightsuccessful models

Strengtheningfarmercapacity

• Train farmers on input usage;quality and safety standardsand market-focusedproduction

• Train “trainers” who can teachfarmers and others

• Strengthen and expandmarket-focused agriculturalextension services

• Collaborate existingagricultural extensionservices

• Conduct farmer training• Support impact

evaluation

• Fund and conducttraining

• Support set up of modelfarms

• Share data and bestpractices

Building

markets for

high-value

sustainable

trade

• Develop and contract forhigh-value products

• Train and support farmers• Monitor standards compliance• Develop branding and

consumer awarenessmarketing plan

• Boost sectoralcompetitiveness

• Incentivize local production• Build processing facilities and

necessary infrastructure• Secure IP rights for products

• Farmer organizing,training and facilitation

• Certification andmonitoring

• Monitor compliance;assess impacts

• Fund training andcertification for localvalue capture

• Share data and bestpractices; highlightsuccessful models

Switchingfrom importsto localsourcing

• Develop local supply chains• Commit to smallholder

sourcing• Create branded products

• Incentivize local production• Collaborate with companies • Promote locally grown

products• Scale up production

• Link farmers withmarkets

• Establish farmer trainingand organize farmers

• Share data and bestpractices

• Identify marketopportunities

• Fund the start-up phaseof new productionschemes

• Share data and bestpractices

Commercial-izing localraw material

• Conduct research andidentification

• Commercialize, brand anddistribute new products

• Build local businesses orsubsidiaries to formulatequality products

• Regulate and certify newproducts

• Conduct social marketing tostrengthen demand for newproducts

• Access communityknowledge on localproducts and resources

• Serve as an honestbroker to help farmerscapture value

• Train and organizefarmers

• Research and evaluatenew products

• Use media channels toadvocate productbenefits

• Share information onfindings

Improvingmarketlinkages andsupply chainefficiency

• Commit to interact with value-added intermediaries

• Invest in building capacity• Incentivize value-added

activities

• Create an effective businessenabling environment

• Act as an intermediarybetween companies,farmers andentrepreneurs

• Fund intermediariesnetworks and models

• Share data and bestpractices; highlightsuccessful models

| 63

64 |

Business Models for Consumers: Actions to Enable Scaling Up

BusinessModel

Companies Governments NGOs

Donors,internationalorganizations andacademia

Designingnutritiousfood for poorconsumers

• Commit resources fortailored product design

• Cross-subsidize withinestablished productportfolio

• Partner with peers andsuppliers to seek costefficiencies

• Partner with localresearch institutes

• Participate in PPPs• Market into multiple

channels: humanitarian,institutional, andcommercial

• Introduce mandatoryfortification policy

• Introduce IP regulation• Strengthen food safety

standards and regulation

• Support datacollection on theBOP to feed intoR&D processes

• Support distributionof fortified products

• Participate in pilotprojects

• Assist in impactevaluation

• Provide funds forR&D and datacollection

• Strengthen foodsafety standards

• Supportcoordination ofpublic-privatepartnerships

• Share knowledgeon design/impact/evaluation

• Fund impactevaluation

Strengtheningconsumerdemandthrougheffectivemarketing

• Partner with local entitiesthat can ensure effectiveoutreach

• Use brand buildingexpertise to create brandloyalty

• Make government mediaplatforms available forsocial marketing

• Use government healthagencies to partner withprivate sector

• Support creation andmarketing of certifiedlabelling

• Support outreach byleveraging NGOfootprint andplatforms

• Participate in PPPsto secureconsumers’ trust

• Manage community-based marketing

• Advise on andevaluate producthealth benefits

• Fund marketingcampaigns

• Share bestpractices andintroduce alternativemarketing models

• Participate toestablish credibility

Expandingretaildistributionnetworks

• Set up tailored serviceand training for micro-retailers with mutualbenefits

• Share best practicesinternally and externally

• Partner with entities whohave local footprint

• Seek business-to-business partnerships tobundle services andaggregate supply anddistribution

• Support set up of tradeunions for micro-retailers

• Provide tax incentives forretail support schemes

• Support legislation thatallows cross-industrysynergies

• Provide policy incentivesfor retail innovation

• Support set up ofco-operatives formicro-retailers

• Support training andeducationalprogrammes

• Support outreach byleveraging NGOfootprint andplatforms

• Make investmentfunds available formicro-entrepreneursand innovativemodels

• Share data and bestpractices

| 65

Models for Business Enablers: Actions to Enable Scaling Up

BusinessModel

Companies Governments NGOs Donors, internationalorganizations andacademia

Pricinginformationsystemsthroughmobiletechnology

• Re-engineer products andservices for usability andaffordability

• Lower first-purchasethreshold for mobilephones

• Sponsor education andmarketing campaigns

• Partner with institutionsand entities who cancontribute either contentor technology

• Lower import barriers forhandsets and equipment

• Lower regulatory barriers • Harmonize and lower call

tariffs for cross-bordercommunication in theregion

• Support expansion ofcoverage

• Support educationprogrammes

• Monitor and reporton programmes

• Provide funding todevelop pro-poorapplications

• Set up informationsystems anddatabases

• Share data and bestpractices

Informationon goodagriculturalpractices

• Lower first purchasethreshold

• Sponsor educationalmarketing campaigns

• Partner with institutionsand entities who cancontribute either contentor technology

• Provide funding andknowledge to help set uplocal entrepreneurialventures

• Lower import barriers forhandsets and equipment

• Lower regulatory barriers • Harmonize and lower call

tariffs for cross-bordercommunication in theregion

• Provide tax incentives tocompanies that work withlocal entrepreneurs

• Provide agriculturalexpertise

• Support educationprogrammes

• Help identifyappropriate targetgroups

• Provide agriculturalexpertise

• Set up informationsystems anddatabases

• Share data and bestpractices

Credit forindividualfarmers

• Provide financial servicesdirectly to farmers

• Partner with institutionsand entities which providecredit

• Explore ways to supportthe creation and operationof credit rating agencies

• Streamline regulations toexpedite approvalprocesses for credit-granting schemes

• Monitor impact • Explore ways to support

the creation andoperation of credit ratingagencies

• Support educationprogrammes

• Help identifyappropriate targetgroups

• Provide technicalassistance to helpfarmers use creditfor incomegeneration activities

• Provide financing tosupport financialservices to the poor

• Provide loanguarantees or seedfinancing to SMEs

• Explore ways tosupport the creationand operation ofcredit rating agencies

Mobile cashtransferservices

• Design cost-effectiveopen platforms for mobilepayments

• Develop cross-sectorcollaboration, for examplebetween telecom andfinance companies

• Establish policies andregulations to allowmobile payments

• Ensure that policies arefair and equitable forcompanies and endusers

• Support educationprogrammes

• Monitor and reporton government andcompanyinterventions

• Share best practicesand knowledge

• Monitor and evaluateeffectiveness

• Provide start-upfinancing to catalyseinnovations

Monetarystabilitythroughsavings andinvestments

• Design tailored productsand offerings that addresslocal needs

• Encourage specializedsavings and investmentproducts through policyand regulation

• Provide guarantees forsuch products ifnecessary

• Support educationprogrammes on theimportance ofsavings andinvestments

• Provide funding• Develop mechanisms

to facilitate replicationacross regions

continued on the next page >>

66 |

BusinessModel

Companies Governments NGOs

Donors,internationalorganizations andacademia

Downsideprotectionthrough novelriskmitigationinstruments

• Design tailored productsand offerings that addresslocal needs

• Create localizeddatabases and trackingtools for continuousimprovement in riskmitigation strategies tolower cost to the end user

• Establish policy measuresfor specialized insuranceproducts, and riskmanagement

• Ensure protection of thepublic interest througheffective policymechanisms

• Support educationprogrammes

• Monitor and reporton programmes

• Share bestpractices andknowledge

• Developmechanisms tofacilitate replicationacross regions

Capitalfunding forsmallbusinesses

• Contribute investmentfunds set up by inter-governmentalorganizations

• Provide technicalassistance with regards torisk management,process efficiencies andmanagement structures

• Set up investment fundsfor micro-entrepreneurs

• Establish policies toencourage SME finance

• Conduct trainingprogrammes

• Monitor and reporton programmes

• Set up investmentfunds for micro-entrepreneurs

• Assess and reporton risks and returnsin poor regions

• Establishtransparent riskmonitoring systems

Hardinfrastructure

• Build partnerships tocreate synergies andbundle technologies andcompetencies acrosssectors

• Incorporate environmentalsustainability as a corerequirement

• Provide tax incentives toencourage private-sectorinvestments ininfrastructure

• Promote PPP models

• Help identify BOPneeds and solutions

• Provide independentevaluation ofenvironmentalsustainability

• Provide funding• Identify and

disseminate bestpractices

• Provide technicalassistance

Softinfrastructure

• Conduct managementand commercial skillbuilding for cooperatives

• Help develop andencourage compliancewith food standards andnorms

• Set up educational andtraining programmes

• Partner with the privatesector to improveproducer capacity andorganization

• Establish and enforcequality standards

• Support capacitybuildingprogrammes

• Supportcooperatives andfarmer organizations

• Monitor standardsand implementation

• Provide funding forproducer capacitybuilding andorganization

• Share bestpractices andinformation

• Facilitate PPPs

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Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)