aerial view of plantation field
Sugar cane requires extensive irrigation systems to be cultivated outside of the rainy season – improvements which AgDevCo's investments helped to provide.
News

Understanding the role of finance in creating a successful farming cooperative

An evaluation of AgDevCo’s support for Phata, a sugar cane-growing cooperative in Malawi, shows how well-managed private investment and grant funding can yield enormous benefits for farmers.

28. Feb 2019

Phata is one of the most effective farming cooperatives in Malawi, and the government is keen to replicate its success. LTS, part of the NIRAS group, recently completed a qualitative assessment of the sugar cane-growing cooperative and the role of impact investor AgDevCo in helping Phata achieve positive outcomes where others have failed.

Four out of five Malawians are engaged in farming, working crops such as tobacco, tea, and sugar cane. Most of these are subsistence farmers, reliant on a single rainy season’s crop to support them throughout the year. Without significant investment in infrastructure, equipment, technology, and improved practices, these farmers remain stuck in a cycle of poverty. When a newly founded sugar cane farming cooperative in southern Malawi – Phata – wanted to make such investments but lacked the financing, AgDevCo, an impact investor, stepped in.

AgDevCo aims to build African agribusinesses through long-term investment and hands-on support to deliver positive impact at scale. The investor gave Phata a capital loan of USD 508,810 to finance the latter’s own contribution need to access an EU grant facility of over USD 3 million. The funding was allocated to develop 300 hectares of 438 farmers’ land into sugar cane plantations.

With the initial loan, followed several years later by a second round of financing, Phata was able to create a sustainable structure which brought irrigation technology, experienced management, expert agricultural guidance, and fruitful partnerships with stakeholders all along the value chain. 

Infrastructure investments allowed for irrigation systems to be installed, among many components of the larger intervention.

What an in-depth analysis revealed

LTS’s assessment found AgDevCo’s support for Phata has had a significant impact on the cooperative members' lives. Income has increased for farmers from an average of USD 120 per year in 2011 to USD 641 per year during the 2016–2017 season. This has enabled cooperative members to invest in new houses and infrastructure, send children to school, and even purchase an ambulance for the community.

Before Phata, we had very little money; between climate change and our primitive farming methods, we'd get nothing from our land, especially with falling cotton prices.

Phata Executive Committee member

Phata is among the most successful farmer cooperatives in which AgDevCo has invested, and LTS conducted an in-depth case study to learn why the programme has been so successful. Eight groups of key informants were interviewed, including representatives of AgDevCo, the management company hired by the cooperative, the sugar cane processing company which buys their product, and many members of the cooperative itself. Furthermore, several focus groups were conducted to get a broader understanding of how support from the impact investor has impacted the daily lives and livelihoods of the members.

Among several key outcomes for the local community, the educational enrolment rates skyrocketed as families earned enough to pay school dues.

The evaluation revealed several critical success factors, all of which played a role in building this truly professional farmer cooperative. In order of importance, though each was key, these were:

  • Being demand-led (Phata was conceptualised by the community itself)
  • Oversight by an expert management company (Phata pays Agricane to manage the farm)
  • Securing reliable markets (long-term offtake agreement with Illovo, including fair trade agreements)
  • Reinvestment of dividends and prudent financial management
  • A community-created constitution (which took over two years to create)
  • Ensuring the independence of board members
  • Continuous capacity building (even as a part of the business model)

Furthermore, the case study demonstrated the fundamental importance of integrating lessons learned into Phata’s operational model and constantly striving for improvement. During the second round of financing, several important changes took place which allowed the cooperative to thrive and grow even faster than it had before. This included, for example, investment in extension services that incorporated literacy training for farmers to improve communications.

To read more about this exciting farmer cooperative, please click here to see the brochure produced for AgDevCo during the case study.