INVESTING IN TREES AND LANDSCAPE ... - PROFOR

1.4 VALUE CHAIN INNOVATIONS FOR PROMOTING INVESTMENT
Numerous marketing and financial arrangements can foster large-scale investment in trees and land
restoration. Historical data on domestic private investment are difficult to come by in Sub-Saharan
African countries, particularly at the sectoral level. A significant proportion of such investment is in
small to medium-scale producers and enterprises, and it tends to be informal and thus not captured
in national statistics. With limited access to credit and capital, African entrepreneurs rely on personal
savings to finance their business entities (Mhlanga 2010). With the exception of Malawi, Tanzania,
and Uganda, commercial banks in Sub-Saharan Africa lend less than 10 percent of their total credit
to the agricultural sector.
Because of this credit gap, there is more emphasis on vertical integration of value chains; for example,
where large agribusiness interests acquire land for production or where outgrower arrangements
are established. These arrangements often involve the transfer of finance from buyers/processors
to producers, enabling investments that will help meet the production quantity and quality needs
of buyers. There is an increasing trend for multinationals and foreign companies to purchase or
lease large land areas in African countries for export-oriented agricultural production. Most of the
transactions are arranged between the foreign private investors and the targeted host governments
(Mhlanga 2010). These agricultural land investments could provide opportunities for increased
investment in Sub-Saharan African agriculture if principles for responsible agro-investment are
respected (Deininger et al. 2011).
Three important investment directions for tree-based systems are through outgrower schemes/
cooperatives, through certification schemes based on ecologically friendly production, and through
payments for environmental services. Tree crop systems have long been supported by government
investment in providing inputs on credit, in funding local collection infrastructure, and in participating
in export marketing chains. The outgrower model is a private sector corollary in which agribusiness
companies contract with farmers, small and large, for tree products. Participation in certification
schemes does not often help farmers finance inputs, but these schemes can provide higher returns
through opportunities to access new markets that attract higher commodity prices.
Contract Farming and Outgrower Schemes
Successful outgrower schemes are in place for many products in Africa, including timber/wood
production. The following are some of the arrangements that have been developed for trading wood
between growers and the processing industry:
• Wood-processing companies obtain their supplies through trading intermediaries (market
agents) and do not have a direct relationship with farmers/growers.
• Wood-processing companies lease land under contract for a specific period from landholders to
grow the trees themselves.
• Wood-processing companies enter into a contract with farmers to grow trees that are then sold
to the companies.
• Cropshare joint ventures involve contract agreements between landowners and a woodprocessing
company (investor), specifying the responsibilities of each partner and the sharing
of costs and benefits throughout the life of the tree crop. The returns from the harvest are
determined by the market price.
Chapter 1. TREE-BASED AND OTHER LAND MANAGEMENT TECHNOLOGIES FOR LANDSCAPE RESTORATION AND LIVELIHOOD IN AFRICA
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